SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1994
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, 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 February 28, 1994 was 106,081,293
shares.
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited, amounts in thousands, except share amounts
January 31, April 30,
1994 1993
ASSETS
CURRENT ASSETS
Cash (including certificates of deposit of $11,136
and $36,074)....................................... $ 36,012 $ 43,417
Marketable securities................................ 56,812 291,347
Receivables, less allowance for doubtful accounts of
$9,762 and $12,000................................. 636,146 228,691
Prepaid expenses..................................... 39,184 26,483
---------- ----------
TOTAL CURRENT ASSETS................................. 768,154 589,938
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities................. 99,938 104,762
Excess of cost over fair value of net tangible
assets acquired, net of amortization............... 70,408 125,628
Other................................................ 35,483 37,120
---------- ----------
TOTAL INVESTMENTS AND OTHER ASSETS................... 205,829 267,510
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization........................ 157,704 148,386
---------- ----------
TOTAL ASSETS........................................... $1,131,687 $1,005,834
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable........................................ $ 357,370 $ 37,167
Accounts payable, accrued expenses and deposits...... 130,746 132,321
Accrued salaries, wages and payroll taxes............ 40,265 53,495
Accrued taxes on income.............................. 31,814 106,943
---------- ----------
TOTAL CURRENT LIABILITIES............................ 560,195 329,926
OTHER NONCURRENT LIABILITIES........................... 28,668 25,420
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share.... 1,089 1,089
Additional paid-in capital........................... 92,422 101,038
Retained earnings.................................... 557,812 643,757
---------- ----------
651,323 745,884
Less cost of 2,960,278 and 2,617,463 shares of
common stock in treasury........................... 108,499 95,396
---------- ----------
542,824 650,488
---------- ----------
$1,131,687 $1,005,834
========== ==========
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
January 31,
1994 1993
Revenues
Service revenues...................................... $213,787 $169,857
Franchise royalties................................... 9,551 9,069
Investment income..................................... 2,800 3,048
Other income.......................................... 3,303 8,773
-------- --------
229,441 190,747
-------- --------
Expenses
Employee compensation and benefits.................... 83,731 76,243
Occupancy and equipment............................... 60,686 50,898
Marketing and advertising............................. 9,730 6,654
Supplies, freight and postage......................... 17,385 16,669
Other................................................. 44,292 32,238
Purchased research and development.................... 25,072 -
-------- --------
240,896 182,702
-------- --------
Earnings (loss) from continuing operations before
tax expense........................................... (11,455) 8,045
Income tax expense...................................... 6,479 2,350
-------- --------
Net earnings (loss) from continuing operations.......... (17,934) 5,695
Net earnings from discontinued operations (less
applicable income taxes of $2,920 and $3,091)......... 3,225 2,888
Gain on sale of discontinued operations (less
applicable income taxes of $16,711)................... 27,265 -
-------- --------
Net earnings............................................ $ 12,556 $ 8,583
======== ========
Weighted average number of common shares outstanding.... 106,892 107,447
======= =======
Earnings (loss) per share
From continuing operations........................... $ (.17) $ .05
======== ========
Net earnings......................................... $ .12 $ .08
======== ========
Dividends per share..................................... $ .28 $ .25
======== ========
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share amounts
Nine Months Ended
January 31,
1994 1993
Revenues
Service revenues...................................... $434,886 $339,746
Franchise royalties................................... 13,725 13,345
Investment income..................................... 10,331 11,681
Other income.......................................... 5,019 10,630
-------- --------
463,961 375,402
-------- --------
Expenses
Employee compensation and benefits.................... 162,575 145,467
Occupancy and equipment............................... 160,602 132,594
Marketing and advertising............................. 23,486 18,318
Supplies, freight and postage......................... 32,261 30,716
Other................................................. 93,662 68,740
Purchased research and development.................... 25,072 -
-------- --------
497,658 395,835
-------- --------
Loss from continuing operations before tax benefit...... (33,697) (20,433)
Income tax benefit...................................... (3,347) (9,701)
-------- --------
Net loss from continuing operations..................... (30,350) (10,732)
Earnings from discontinued operations (less applicable
income taxes of $8,706 and $8,094).................... 9,268 8,197
Gain on sale of discontinued operations (less
applicable income taxes of $16,711)................... 27,265 -
-------- --------
Net earnings (loss)..................................... $ 6,183 $ (2,535)
======== ========
Weighted average number of common shares outstanding.... 106,581 106,647
======= =======
Earnings (loss) per share
From continuing operations........................... $ (.28) $ (.10)
======== ========
Net earnings (loss).................................. $ .06 $ (.02)
======== ========
Dividends per share..................................... $ .81 $ .72
======== ========
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
Nine Months Ended
January 31,
1994 1993
Cash flows from operating activities
Net earnings (loss).................................. $ 6,183 $ (2,535)
Adjustments to reconcile the net earnings (loss) to
net cash used in operating activities:
Depreciation and amortization....................... 46,541 39,636
Gain on sale of subsidiary.......................... (27,265) -
Charge for purchased research and development....... 25,072 -
Other noncurrent liabilities........................ 3,248 3,513
Changes in:
Receivables....................................... (249,504) (258,747)
Prepaid expenses.................................. (20,043) (20,346)
Net assets held for sale.......................... (17,370) -
Accounts payable, accrued expenses and deposits... 1,154 47,260
Accrued salaries, wages and payroll taxes......... (272) (19,924)
Accrued taxes on income........................... (91,646) (70,644)
--------- ---------
Net cash used in operating activities................ (323,902) (281,787)
--------- ---------
Cash flows from investing activities
Purchases of marketable securities................... (518,466) (486,675)
Maturities of marketable securities.................. 757,826 732,495
Purchases of property and equipment.................. (65,011) (53,024)
Excess of cost over fair value of net tangible
assets acquired, net of cash acquired.............. (49,938) (9,630)
Other, net........................................... (20,042) (10,809)
--------- ---------
Net cash provided by investing activities............ 104,369 172,357
--------- ---------
Cash flows from financing activities
Repayments of notes payable.......................... (327,302) (150,648)
Proceeds from issuance of notes payable.............. 647,505 364,920
Dividends paid....................................... (86,356) (76,883)
Payments to acquire treasury shares.................. (68,899) (70,606)
Proceeds from stock options exercised................ 47,180 59,305
--------- ---------
Net cash provided by financing activities............ 212,128 126,088
--------- ---------
Increase (decrease) in cash............................ (7,405) 16,658
Cash at beginning of period............................ 43,417 13,476
--------- ---------
Cash at end of period.................................. $ 36,012 $ 30,134
========= =========
Supplemental disclosures of cash flow information
Income taxes paid.................................... $ 97,199 $ 69,037
Interest paid........................................ 976 2,239
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. The Consolidated Balance Sheet as of January 31, 1994, the
Consolidated Statements of Operations for the three and
nine months ended January 31, 1994 and 1993, and the
Consolidated Statements of Cash Flows for the nine months
ended January 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 January
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, 1993 Annual Report to Shareholders.
Operating revenues are seasonal in nature with peak
revenues occurring in the months January through April.
Thus, the nine months results are not indicative of
results to be expected for the year.
2. On January 27, 1994 the Company sold 100% of the common
stock of its wholly-owned subsidiary, Interim Services
Inc., for $20 per share in an initial public offering of
10,000,000 shares. Since cash proceeds from the sale were
received subsequent to quarter end, a receivable, net of
underwriting fees, of $188.500 million is included in
accounts receivable at January 31, 1994. The sale was
treated as a non-cash item for purposes of reporting cash
flows. The sale resulted in a pretax gain of $43.976
million ($27.265 million or $.26 per share, net of taxes).
The gain is net of costs incurred in connection with the
sale. The Consolidated Statements of Operations have been
restated for all periods presented to report results of
discontinued operations separately from continuing
operations. Revenues from discontinued operations for the
three months ended January 31, 1994 and 1993 were $141.896
million and $118.121 million, respectively. Revenues from
discontinued operations for the nine months ended January
31, 1994 and 1993 were $399.573 million and $335.608
million, respectively.
3. On November 20, 1993, the Company acquired MECA Software,
Inc., a provider of personal finance and income tax
preparation software, for $45.384 million in cash. The
transaction was accounted for as a purchase and,
accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based upon their
fair values at the date of acquisition. MECA's results
are included in the Company's operations from the date of
acquisition.
The excess of the purchase price over the fair value of
the net tangible assets acquired was $55.978 million. Of
this amount, purchased software, which had reached the
stage of technological feasibility, was valued using a
risk-adjusted cash flow model, under which future cash
flows were discounted taking into account risks related to
future markets and an assessment of the life expectancy of
purchased software. Purchased research and development
which had not reached the stage of technological
feasibility and which had no alternative future use was
valued using the same methodology. Expected future cash
flows associated with in-process research and development
were discounted considering the risks and uncertainties
related to the viability of and potential changes in
future markets and to the completion of products that will
be ultimately marketed by MECA. This analysis resulted in
an allocation of $25.072 million to purchased research and
development which had not reached the stage of
technological feasibility and $4.900 million to various
other intangibles including technology, software and
trademarks, with the remainder treated as goodwill. The
amount related to purchased research and development,
which is not deductible for tax purposes, was charged
against income from continuing operations on the date of
acquisition.
Goodwill and other intangibles arising from the
acquisition will be amortized on a straight-line basis
over estimated economic lives of 3 to 15 years. Pro forma
results, assuming MECA had been acquired as of the
beginning of the periods presented, would not be
materially different from results from operations as
reported.
Liabilities assumed in connection with the acquisition
were excluded from the Consolidated Statements of Cash
Flows. The fair value of assets acquired, including
intangibles, was $62.004 million; liabilities assumed were
$16.620 million.
4. Marketable equity securities at January 31, 1994, all of
which are included in noncurrent assets, are stated at
their cost of $8,243,000. The market value of these
securities at January 31, 1994 was $15,884,000. The
remainder of the marketable securities at January 31, 1994
is stated at amortized cost. At April 30, 1993, the cost
of marketable equity securities was $9,255,000. The
market value of these securities at April 30, 1993 was
$18,460,000.
5. 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. The
Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes,
in the first quarter of fiscal 1994. The effect of its
implementation was not material.
6. Net earnings (loss) per common share are based on the
weighted average number of shares outstanding during each
period, and in periods in which they have a dilutive
effect, the effect of common shares contingently issuable
from stock options. Earnings per share assuming full
dilution have not been shown as there would be no material
dilution.
7. During the nine months ended January 31, 1994 and 1993,
the Company issued 1,546,551 and 2,303,907 shares,
respectively, pursuant to provisions for exercise of its
stock option plans; during the same period, the Company
acquired 1,883,816 and 2,028,000 shares of its common
stock at an aggregate cost of $68,899,000 and $70,606,000,
respectively.
8. 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." The Statement expands the use of fair
value accounting for "trading" and "available-for-sale"
securities, but retains the use of the amortized cost
method for investments in debt securities that the
enterprise has the positive intent and ability to hold to
maturity. The Company currently accounts for all such
investments using the amortized cost method. Adoption of
the Statement is required for fiscal years beginning after
December 15, 1993. Adoption of this Statement will not be
material to the Company's financial position or results
from operations.
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 4, respectively.
Working capital decreased from $260.012 million at April 30,
1993 to $207.959 million at January 31, 1994. The working
capital ratio at January 31, 1994 was 1.4 to 1 compared to 1.8
to 1 at April 30, 1993. The decrease in working capital and
working capital ratio 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 decrease in working capital and working capital ratio was
primarily due to the increase in short-term borrowings, as
discussed below, significantly offset by the receivable
recorded for the proceeds from the sale of Interim Services
Inc. (see Note 2 of Notes to Consolidated Financial
Statements).
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, a wholly-owned subsidiary of the
Company, incurs short-term borrowings during the months of
January through April to purchase interests in a trust to
which certain Refund Anticipation Loans made by Mellon Bank
are sold. The amount outstanding in connection with such
activities at April 30, 1993 of $37.167 million was repaid
during the first quarter of fiscal 1994. At January 31, 1994,
short-term borrowings of $357.370 million were used to fund
the Block Financial Corporation program discussed above. The
Company also maintains a year-round $100 million line of
credit to support various financial activities to be conducted
by Block Financial Corporation in the future that may require
further borrowing.
On December 8, 1993 the Company announced its intention to
purchase from time to time, at market, up to 10,000,000 shares
of its outstanding stock. The Company intends to purchase
shares on a periodic basis depending upon market conditions,
and expects that 4he authorization will extend beyond two
years. Internally generated funds, in addition to proceeds
from the sale of Interim Services Inc., will be used to
purchase these shares.
The Company's acquisition of MECA Software, Inc., acquisition
of treasury shares, capital expenditures and dividend payments
during the first nine months were funded primarily through
internally-generated funds.
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." The Statement expands the use of fair value
accounting for "trading" and "available-for-sale" securities,
but retains the use of the amortized cost method for
investments in debt securities that the enterprise has the
positive intent and ability to hold to maturity. The Company
currently accounts for all such investments using the
amortized cost method. Adoption of the Statement is required
for fiscal years beginning after December 15, 1993. Adoption
of this Statement will not be material to the Company's
financial position or results from operations.
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. and acquired MECA Software, Inc. (See Notes 2
and 3 of the Notes to Consolidated Financial Statements.) The
results of Interim Services Inc. were previously reflected as
the Temporary Help Services segment. Other Services includes
the operations of Block Financial Corporation and MECA
Software, Inc.
The analysis of operations for the three and nine months ended
January 31, 1994 compared to the same periods last year, and
the three months ended January 31, 1994 compared to the three
months ended October 31, 1993, follows. The analysis should
be read in conjunction with the tables below and the
Consolidated Statements of Operations found on pages 2 and 3.
Three Months Ended January 31, 1994 Compared to
Three Months Ended January 31, 1993
Results by segment are summarized below, amounts in thousands.
Revenues Earnings (loss)
-------------------- --------------------
1994 1993 1994 1993
Tax services.................... $104,557 $105,221 $(12,471) $(10,817)
Computer services............... 113,749 81,179 29,313 19,092
Other services.................. 11,078 4,477 (715) 827
Inter-segment eliminations...... (2,850) (3,280) - -
-------- -------- -------- --------
226,534 187,597 16,127 9,102
Investment income............... 2,800 3,048 2,800 3,048
Unallocated corporate........... 107 102 (5,310) (4,105)
-------- --------
$229,441 $190,747
======== ========
Purchased research and
development................... (25,072) -
-------- --------
(11,455) 8,045
Provision for tax expense....... 6,479 2,350
-------- --------
Net earnings (loss) from
continuing operations......... (17,934) 5,695
Discontinued operations:
Net earnings.................. 3,225 2,888
Net gain on sale.............. 27,265 -
-------- --------
Net earnings.................... $ 12,556 $ 8,583
======== ========
Consolidated revenues from continuing operations for the three
months ended January 31, 1994 increased 20.3% to $229.441
million from $190.747 million reported last year. The
increase is due to greater revenues reported by the Computer
Services segment, in addition to revenues contributed by MECA
Software, Inc. which was acquired in the third quarter of
fiscal 1994. The Computer Services segment revenues increased
$32.570 million, or 40.1%, over the comparable period last
year due to continued strong demand in the consumer and
network services markets. MECA Software, Inc. reported
revenues of $4.501 million for the third quarter of fiscal
1994.
Pretax earnings from continuing operations for the third
quarter of fiscal 1994, excluding the non-recurring charge for
purchased research and development, increased 69.3% to $13.617
million from $8.045 million last year. The increase in
earnings resulted from the increase in earnings reported by
the Computer Services segment of $10.221 million, or 53.5%,
due to strong revenue growth. In connection with the
acquisition of MECA Software, Inc., in-process research and
development, which had not reached the stage of technological
feasibility, was valued at $25.072 million and recorded as a
non-recurring charge against earnings from continuing
operations.
Tax Services segment revenues decreased .6% to $104.557
million from $105.221 million last year, due primarily to a
53.2% decrease in Canadian discounted return fees. The
significant decrease in discounted return fees is attributable
to Canadian tax changes that affect the Company's tax refund
discounting business. Tax preparation and Rapid Refund fees
increased 3.3% and 6.8%, respectively, as compared to last
year.
Computer Services segment revenues increased 40.1% to $113.749
million from $81.179 million in the comparable period last
year. The large increase resulted from the success of
consumer services and Wide Area Network services, the revenues
from which increased 57.6% and 31.0%, respectively, over the
comparable period last year. The growth in these services
resulted from greater usage.
Other Services revenues increased $6.601 million, primarily
due to the MECA acquisition completed on November 20, 1993.
MECA contributed revenues of $4.501 million for the third
quarter of fiscal 1994.
Investment income decreased 8.1% to $2.800 million from $3.048
million last year. The decrease resulted primarily from lower
yields and less funds available for investment.
Consolidated expenses from continuing operations, excluding
the non-recurring charge for purchased research and
development, increased 18.1% to $215.824 million from $182.702
million in the comparable quarter last year. Computer
Services segment expenses increased $22.349 million, or 36.0%,
to $84.436 million from $62.087 million in last year's
comparable period and are associated with the greater
revenues. The Tax Services segment's expenses were affected
by the lower revenues, increasing .9% over the comparable
period last year. Other Services expenses increased from
$3.650 million to $11.793 million as a result of the MECA
acquisition.
The net loss from continuing operations for the third quarter
of fiscal 1994 was $17.934 million, or $.17 per share,
compared to net income of $5.695 million, or $.05 per share,
for the same period last year. The significant change in net
results from continuing operations is due to the non-recurring
charge for purchased research and development discussed above.
Excluding this charge, the net earnings from continuing
operations for the third quarter was $7.138 million, or $.07
per share, an increase of 25.3%. Net earnings from
discontinued operations of $.03 per share were equal to
earnings per share for the same period last year. The
weighted average shares outstanding for the third quarter of
fiscal 1994 declined to 106,892,000 from 107,447,000 last
year, due to repurchase of outstanding shares in the first
nine months of this year, offset by treasury shares issued for
stock option exercises.
Three Months Ended January 31, 1994 (Third Quarter) Compared
to Three Months Ended October 31, 1993 (Second Quarter)
Results by segment are summarized below, amounts in thousands.
Revenues Earnings (loss)
------------------- --------------------
3rd Qtr 2nd Qtr 3rd Qtr 2nd Qtr
Tax services..................... $104,557 $ 26,315 $(12,471) $(32,338)
Computer services................ 113,749 102,543 29,313 24,442
Other services................... 11,078 1,447 (715) (154)
Inter-segment eliminations....... (2,850) (2,625) - -
-------- -------- -------- --------
226,534 127,680 16,127 (8,050)
Investment income................ 2,800 3,464 2,800 3,464
Unallocated corporate............ 107 62 (5,310) (3,281)
-------- --------
$229,441 $131,206
======== ========
Purchased research and
development.................... (25,072) -
-------- --------
(11,455) (7,867)
Provision for tax expense
(benefit)...................... 6,479 (3,694)
-------- --------
Net loss from continuing
operations..................... (17,934) (4,173)
Discontinued operations:
Net earnings................... 3,225 3,241
Net gain on sale............... 27,265 -
-------- --------
Net earnings (loss).............. $ 12,556 $ (932)
======== ========
Consolidated revenues from continuing operations during the
third quarter increased 74.9% to $229.441 million from
$131.206 million reported for the second quarter. The
increase was primarily due to the start of the 1994 tax filing
period, the improved performance of the Computer Services
segment and the acquisition of MECA.
The Company reported a pretax loss from continuing operations
of $11.455 million for the third quarter, compared to a $7.867
million loss for the second quarter of fiscal 1994. The
increase in the reported loss resulted from the non-recurring
charge for purchased research and development recorded in the
third quarter. Excluding this charge, the pretax results from
continuing operations increased to $13.617 million in earnings
from a $7.867 million loss for the second quarter. The
significant improvement in pretax results from continuing
operations excluding the non-recurring charge was due
primarily to the Tax Services segment as a result of the start
of the tax filing period. Additionally, earnings from the
Computer Services segment increased 19.9% over the second
quarter of fiscal 1994.
Tax Services segment revenues increased 297.3% to $104.557
million from $26.315 million in the second quarter. The
increase is attributable to increased tax preparation fees,
Rapid Refund fees and Canadian discounted return fees caused
by the onset of the tax filing period, slightly offset by a
decrease in tuition tax school fee revenues which are
typically earned in the fall preceding the tax filing season.
Computer Services segment revenues increased 10.9% to $113.749
million from $102.543 million in the preceding quarter. The
increase is essentially due to an increase in consumer
revenues by $10.507 million, resulting from increases in the
number of customer and usage hours in the United States, in
addition to an increase in European consumer revenues.
Other Services revenues increased to $11.078 million from
$1.447 million in the preceding quarter. In addition to the
acquisition of MECA Software, Inc., the increase was due to
Block Financial Corporation's participation in Refund
Anticipation Loans made by Mellon Bank.
Investment income decreased 19.2% to $2.800 million from
$3.464 million in the second quarter. The decrease resulted
from lower funds available for investment.
Consolidated expenses from continuing operations, excluding
the non-recurring charge for purchased research and
development, increased 55.2% to $215.824 million from $139.073
million in the second quarter. The Tax Services segment
expenses increased 99.5%, representing the expenses associated
with the increased revenues. Computer Services segment
expenses increased 8.1% compared to the second quarter, also
matching the increase in related segment revenues. Other
Services expenses increased from $1.601 million in the second
quarter to $11.793 million, due to the MECA acquisition and
the increased activity of Block Financial Corporation's
participation in Refund Anticipation Loans.
The net loss from continuing operations in the third quarter
was $17.934 million, or $.17 per share, compared to a net loss
of $4.173 million, or $.04 per share, in the second quarter.
The significant change in the net results from operations was
due to the non-recurring charge for purchased research and
development previously discussed. Excluding this charge, net
earnings from continuing operations were $7.138 million, or
$.07 per share, compared to the per share loss of $.04 in the
preceding quarter. The lower net loss was due to greater
earnings from the Computer Services and Tax Services segments.
The net earnings per share from discontinued operations during
the third quarter were $.03 per share, the same as in the
second quarter.
Nine Months Ended January 31, 1994 (FYTD) Compared to
Nine Months Ended January 31, 1993 (FYTD)
Results by segment are summarized below, amounts in thousands.
Revenues Earnings (loss)
------------------- --------------------
1994 1993 1994 1993
Tax services..................... $140,544 $143,447 $(81,973) $(76,510)
Computer services................ 308,180 224,907 75,343 53,062
Other services................... 13,062 4,477 (987) 704
Inter-segment eliminations....... (8,325) (9,280) - -
-------- -------- -------- --------
453,461 363,551 (7,617) (22,744)
Investment income................ 10,331 11,681 10,331 11,681
Unallocated corporate............ 169 170 (11,339) (9,370)
-------- --------
$463,961 $375,402
======== ========
Purchased research and
development.................... (25,072) -
-------- --------
(33,697) (20,433)
Provision for tax benefit........ (3,347) (9,701)
-------- --------
Net loss from continuing
operations..................... (30,350) (10,732)
Discontinued operations:
Net earnings................... 9,268 8,197
Net gain on sale............... 27,265 -
-------- --------
Net earnings (loss).............. $ 6,183 $ (2,535)
======== ========
Consolidated revenues from continuing operations increased
23.6% to $463.961 million from $375.402 million reported last
year. The increase resulted primarily from the Computer
Services segment and Other Services.
The pretax loss from continuing operations increased 64.9% to
$33.697 million from $20.433 million last year, due primarily
to the non-recurring charge for purchased research and
development. Excluding this charge, the pretax loss from
continuing operations decreased 57.8% to $8.625 million as
compared to the prior year. The Computer Services segment
earnings increased $22.281 million, or 42.0%, to $75.343
million from $53.062 million in the preceding year, offset by
the Tax Services segment pretax loss, which increased $5.463
million, or 7.1%, to $81.973 million compared to $76.510
million last year.
Tax Services segment revenues decreased 2.0% to $140.544
million from $143.447 million last year. Tax preparation and
Rapid Refund fees increased 2.9% and 6.5%, respectively, due
to an increase in fee structure, which was more than offset by
Canadian discounted return and tuition tax school fees, which
decreased 52.4% and 7.5%, respectively. The decrease in
discounted return fees resulted from tax law changes related
to child care credits in Canada. Tax tuition school fees
decreased due to lower enrollment as compared to the prior
year.
Computer Services segment revenues increased 37.0% to $308.180
million from $224.907 million last year. The increase was due
to consumer services revenues, which increased by $66.884
million, or 54.3%, and network services revenues, which
increased 34.0% to $20.324 million. The increase in consumer
services revenues was due to increases in the number of
customers and usage hours, and increased European revenues.
The increase in network services revenues was due to growth in
existing packet network customers.
Other Services revenues increased to $13.062 million from
$4.477 million in the preceding year. The increase resulted
primarily from the MECA acquisition, in addition to the
increased activity of Block Financial Corporation.
Investment income decreased 11.6% to $10.331 million from
$11.681 million last year. The decrease resulted from lower
interest rates and less funds available for investment.
Consolidated expenses from continuing operations, excluding
the non-recurring charge for purchased research and
development, increased 19.4% to $472.586 million from $395.835
million last year. Computer Services segment expenses
increased 35.5% to $232.837 million from $171.845 million in
the prior year and was associated with the greater revenues.
Tax Services segment expenses increased 1.2% to $222.517
million from $219.957 million in the preceding year. Other
Services expenses increased from $3.773 million to $14.049
million as a result of the MECA acquisition and increased
activity of Block Financial Corporation.
The net loss from continuing operations for the nine months
was $30.350 million, or $.28 per share, compared to a net loss
of $10.732 million, or $.10 per share, for the comparable
period last year. The significant variance was caused by the
non-recurring charge for purchased research and development
recorded in the third quarter. Excluding this charge, the net
loss from continuing operations was $5.278, or $.05 per share.
The earnings per share from discontinued operations was $.09
this year, compared to $.08 last year. The weighted average
shares outstanding this year declined to 106,581,000 from
106,647,000 last year, due to repurchase of outstanding shares
in the first nine months of this year, offset by the issuance
of treasury stock for exercises of stock options.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(10)(a) Amendment No. 3 to H&R Block, Inc. Deferred
Compensation Plan for Executives.
(b) Amendment No. 4 to H&R Block, Inc. Deferred
Compensation Plan for Executives.
(11) Statement re Computation of Per Share Earnings.
(b) Reports on Form 8-K
During the quarter ended January 31, 1994, the
registrant filed a current report on Form 8-K dated
December 2, 1993 pertaining to the completion of the
acquisition of MECA Software, Inc.
No other current reports on Form 8-K were filed during the
quarter ended January 31, 1994.
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)
BY /s/ William P. Anderson
-----------------------
William P. Anderson
Vice President, Corporate
Development and Chief
Financial Officer
DATE 03/11/94
BY /s/ Ozzie Wenich
-----------------------
Ozzie Wenich
Vice President, Corporate
Controller and Treasurer
DATE 03/11/94
Exhibit (10)(a)
AMENDMENT NO. 3
TO
H&R BLOCK, INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
H&R BLOCK, INC. (the "Company"), adopted the H&R Block, Inc.
Deferred Compensation Plan for Executives (the "Plan") effective
as of August 1, 1987. The Company amended the Plan by Amendment
No. 1 effective December 15, 1990, and by Amendment No. 2
effective January 1, 1990. 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 is effective as of September 11, 1991.
AMENDMENT
1. Section 2.1.27 of the Plan is deleted and replaced with the
following new Section 2.1.27:
2.1.27. "Standard Form of Benefit" as to any
Participant means semimonthly payments for a fifteen
(15) year period.
2. Section 4.4.1 of the Plan is deleted and replaced with the
following new Section 4.4.1:
Section 4.4.1. Except as described in Section
4.4.2, if a Participant terminates employment before
Normal Retirement Date or Early Retirement Date for
reasons other than death or Disability, gains and
losses shall be credited as described in Section 4.2 up
to the date of termination of employment to that
Participant's Accounts that represent Completed
Deferral Cycles. Crediting for Accounts that do not
represent Completed Deferral Cycles shall be at an
interest rate set annually 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.
3. Section 6.2 of the Plan is deleted and replaced with the
following new Section 6.2:
Section 6.2. Form of Benefits Upon Retirement or
Disability. Payments from the Account shall be made in
accordance with the Standard Form of Benefit for
Participants who terminate employment on or after
Normal Retirement Date or Early Retirement Date or are
Disabled. However, no less than 13 months prior to
such termination of employment, the Participant may
petition the Committee for, and the Committee may
approve at such time, an optional form of benefit.
Notwithstanding any other provisions of the Plan,
a Participant who terminates employment on or after
Normal Retirement Date or Early Retirement Date may, at
any time before or after a Change in Control, as
defined in Section 10.2, elect to receive an immediate
lump-sum payment of the balance of said Participant's
Account reduced by a penalty, which shall be forfeited
to the Company, in lieu of payments in accordance with
the Standard Form of Benefit or such optional form of
benefit as may have previously been approved by the
Committee under this Section 6.2. The penalty shall be
equal to ten percent (10%) of the balance of such
Account if the election is made before a Change in
Control and shall be equal to five percent (5%) of the
balance of such Account if the election is made after a
Change in Control. However, the penalty shall not
apply if the Committee determines, based on advice of
counsel or a final determination or ruling by the
Internal Revenue Service or any court of competent
jurisdiction, that by reason of the provisions of this
paragraph any Participant has recognized or will
recognize gross income for federal income tax purposes
under this Plan in advance of payment to the
Participant of Plan benefits. The Company shall notify
all Participants of any such determination by the
Committee and shall thereafter refund all penalties
which were imposed hereunder in connection with any
lump-sum payments made at any time during or after the
first year to which the Committee's determination
applies (i.e., the first year for which, by reasons of
the provisions of this paragraph, gross income under
this Plan is recognized for federal income tax purposes
in advance of payment of benefits). Interest
compounded annually shall be paid by the Company to the
Participant (or the Participant's Beneficiary if the
Participant is deceased) on any such refund from the
date of the Company's payment of the lump sum at an
annual rate set at the time of the refund 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. The Committee may also reduce or
eliminate the penalty if it determines that the right to
elect an immediate lump-sum payment under this paragraph,
with the reduced penalty or with no penalty, as the case may
be, will not cause any Participant to recognize gross income
for federal income tax purposes under this Plan in advance
of payment to the Participant of Plan benefits.
4. Section 6.3 of the Plan, as amended on March 13, 1991, is
further amended by deleting the word "monthly" in the second
sentence thereof and replacing such word with the word
"semimonthly."
5. 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 equal semimonthly
installments paid during the applicable payment period,
such installments to be computed at the commencement of
benefit payments based upon the balance in the Account
at such time, together with an estimate of the gains to
be credited to the Account during the payment period.
Such estimated gains shall be calculated using an
assumed interest rate equal to (a) nine percent (9%)
per annum if the Participant elected the fixed rate
investment option pursuant to Section 4.2; (b) five
percent (5%) per annum if the Participant elected the
variable rate investment option pursuant to Section
4.2; or (c) the annual interest rate set by the Chief
Financial Officer of the Company in accordance with
Section 4.4.1 if the Participant receives benefits
pursuant to Section 6.3. If the Participant is not
receiving benefits pursuant to Section 6.3 and has
elected different crediting rates for separate
Permissible Deferral elections, the estimated gains
shall be calculated separately for each separate
Account applicable to each such separate Permissible
Deferral election.
Generally, the Account shall continue to be
credited during the payment period with gains and
losses as provided in Section 4.3. However, if a
Participant receives benefits pursuant to Section 6.3,
the Account shall be credited with gains and losses as
provided in Section 4.4.1. Except as provided
otherwise, if a Participant dies, Section 6.6 shall
apply.
If, at the end of 12 consecutive months after the
date that benefit payments commence, or at the end of
any subsequent 12-consecutive-month period, the actual
crediting rate for such period is more than the assumed
interest rate, the additional gain resulting from the
difference shall be paid to the Participant in a single
payment on or before the next December 31 following the
end of such period. If, at the end of any such 12-
consecutive-month period, the actual crediting rate for
such period is less than the assumed interest rate, the
amount of the reduced gain resulting from the
difference shall be deducted from succeeding payments
due to the Participant in such manner as the Committee
shall determine.
Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion,
increase or reduce any assumed interest rate set forth
in this Section 6.4 and any such assumed interest rate,
as so adjusted, shall be effective for calculating
equal semimonthly installments for Participants whose
benefit payments commence after the date of such
adjustment.
6. The first paragraph of Section 6.6.1 is amended by adding
the following sentence to the end of said paragraph:
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 any such
election.
7. The second paragraph of Section 6.6.1 is amended by deleting
the word "monthly" in the second sentence of such second
paragraph and replacing such word with the word "semimonthly."
8. Section 6.6.2 is amended by deleting the word "monthly" in
the third sentence thereof and replacing such word with the word
"semimonthly."
9. Section 9.1 of the Plan is amended by adding the following
sentence to the end of said Section 9.1:
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, and amend the Plan to increase or
reduce any assumed interest rate set forth in Section
6.4, in accordance with the provisions of such Section
6.4.
10. 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, amended as provided above.
H&R BLOCK, INC.
By__________________________
Its_________________________
Exhibit (10)(b)
AMENDMENT NO. 4
TO
H&R BLOCK, INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
H&R BLOCK, INC. (the "Company"), adopted the H&R Block, Inc.
Deferred Compensation Plan for Executives (the "Plan") effective
as of August 1, 1987. The Company amended the Plan by Amendment
No. 1 effective December 15, 1990, by Amendment No. 2 effective
January 1, 1990, and by Amendment No. 3 effective September 11,
1991. 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 is
effective as of January 1, 1994.
AMENDMENT
1. Section 4.3 of the Plan is amended by changing the title to
such Section to "Crediting Rate Upon Retirement, Death,
Disability or Termination of Employment With All Affiliates as a
Result of a Change of Control" and by adding the following
sentence at the end of such Section 4.3:
"If a Participant terminates employment with all
Affili-ates 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,
regardless of whether or not such Accounts represent
Completed Deferral Cycles, shall be credited as
described in Section 4.2 up to the date of the Change
of Control and crediting for such Accounts after the
date of the Change of Control shall be at an interest
rate set annually by the Chief Financial Officer of the
Company in his discretion, which shall not be less than
the rate then payable on Invest-ment Savings Accounts
of $1,000 or less at Commerce Bank of Kansas City,
N.A., Kansas City, Missouri, or any successor thereto."
2. Section 4.4.1 of the Plan, as previously amended, is further
amended by deleting the first sentence thereof in its entirety
and replacing such sentence with the following sentence:
"Except as described in Section 4.4.2, if a Participant
terminates employment with all Affiliates before Normal
Retirement Date or Early Retirement Date for reasons
other than death, Disability or a Change of Control,
gains and losses shall be credited as described in
Section 4.2 up to the date of termination of employment
to that Participant's Accounts that represent Completed
Deferral Cycles."
3. Section 6.6.1 of the Plan, as previously amended, is further
amended by deleting the third sentence of the first paragraph
thereof in its entirety and replacing such sentence with the
following sentence:
"If such benefits were payable pursuant to Section 6.3,
the Account shall continue to be credited during the
payout period as provided in Section 4.4, except that,
if such benefits were payable because of the
Participant's termination of employment with all
Affiliates following a Change of Control, the Account
shall continue to be credited as provided in Section
4.3."
4. 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, amended as provided above.
H&R BLOCK, INC.
By_____________________________
Its____________________________
Exhibit 11
CALCULATION OF PRIMARY EARNINGS PER SHARE
Three Months Ended Nine Months Ended
January 31, January 31,
-------------------------- ---------------------------
1994 1993 1994 1993
Net earnings (loss)
from continuing
operations........... $(17,934,000) $ 5,695,000 $(30,350,000) $(10,732,000)
============ ============ ============ ============
Net earnings (loss).... $ 12,556,000 $ 8,583,000 $ 6,183,000 $ (2,535,000)
============ ============ ============ ============
Average number of shares
outstanding - primary:
Average number of
common shares
outstanding......... 105,919,000 107,064,000 105,802,000 106,647,000
Dilutive effect of
stock options after
application of
treasury stock
method.............. 973,000 383,000 779,000 -
----------- ----------- ----------- -----------
Average number of
shares outstanding... 106,892,000 107,447,000 106,581,000 106,647,000
=========== =========== =========== ===========
Primary earnings per
share:
From continuing
operations......... ($.17) $.05 $(.28) $(.10)
==== ==== ===== =====
Net earnings (loss).. $.12 $.08 $.06 $(.02)
==== ==== ==== =====
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE
Three Months Ended Nine Months Ended
January 31, January 31,
-------------------------- ---------------------------
1994 1993 1994 1993
Net earnings (loss)
from continuing
operations........... $(17,934,000) $ 5,695,000 $(30,350,000) $(10,732,000)
============ ============ ============ ============
Net earnings (loss).... $ 12,556,000 $ 8,583,000 $ 6,183,000 $ (2,535,000)
============ ============ ============ ============
Average number of shares
outstanding - fully
diluted:
Shares used in
calculating primary
earnings per share.. 106,892,000 107,447,000 106,581,000 106,647,000
Additional effect of
stock options after
application of
treasury stock
method.............. - - - -
----------- ----------- ----------- -----------
Average number of
shares outstanding... 106,892,000 107,447,000 106,581,000 106,647,000
=========== =========== =========== ===========
Fully diluted earnings
per share:
From continuing
operations......... ($.17) $.05 $(.28) $(.10)
==== ==== ===== =====
Net earnings (loss).. $.12 $.08 $.06 $(.02)
==== ==== ==== =====
