<PAGE> 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 OCTOBER 31, 1998
[ ] 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 December 1, 1998 was 97,622,285 shares.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I Financial Information
<S> <C> <C>
Consolidated Balance Sheets
October 31, 1998 and April 30, 1998 .................................................... 1
Consolidated Statements of Operations
Three Months Ended October 31, 1998 and 1997 ........................................... 2
Six Months Ended October 31, 1998 and 1997 ............................................. 3
Consolidated Statements of Cash Flows
Six Months Ended October 31, 1998 and 1997 ............................................. 4
Notes to Consolidated Financial Statements ................................................ 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 10
Quantitative and Qualitative Disclosures about Market Risk................................. 22
PART II Other Information.......................................................................... 23
SIGNATURES................................................................................................. 27
</TABLE>
<PAGE> 3
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1998 1998
---- ----
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 307,941 $ 900,856
Marketable securities 148,753 346,158
Receivables, less allowance for doubtful accounts of $47,493
and $45,314 1,357,029 793,237
Prepaid expenses and other current assets 153,313 103,026
------------- -------------
TOTAL CURRENT ASSETS 1,967,036 2,143,277
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 123,438 289,096
Excess of cost over fair value of net tangible assets acquired,
net of amortization 295,441 288,580
Other 108,111 105,809
------------- -------------
526,990 683,485
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 75,084 77,321
------------- -------------
$ 2,569,110 $ 2,904,083
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,235,989 $ 643,002
Accounts payable, accrued expenses and deposits 86,524 114,875
Accrued salaries, wages and payroll taxes 11,817 96,168
Accrued taxes on earnings 129,792 422,847
------------- -------------
TOTAL CURRENT LIABILITIES 1,464,122 1,276,892
LONG-TERM DEBT 249,958 249,675
OTHER NONCURRENT LIABILITIES 38,341 35,884
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Additional paid-in capital 410,784 432,335
Retained earnings 905,384 1,010,545
Accumulated other comprehensive income (loss) (31,588) (24,515)
------------- -------------
1,285,669 1,419,454
Less cost of 11,402,585 and 1,992,043 shares of common stock
in treasury 468,980 77,822
------------- -------------
816,689 1,341,632
------------- -------------
$ 2,569,110 $ 2,904,083
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
-1-
<PAGE> 4
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
OCTOBER 31,
-----------
1998 1997
---- ----
REVENUES
<S> <C> <C>
Service revenues $ 63,937 $ 56,469
Product revenues 23,154 22,201
Royalties 2,995 3,401
Other 3,542 921
------------- -------------
93,628 82,992
------------- -------------
OPERATING EXPENSES
Employee compensation and benefits 49,271 41,849
Occupancy and equipment 41,798 38,111
Interest 18,280 13,355
Marketing and advertising 8,492 8,430
Supplies, freight and postage 5,548 5,617
Other 31,269 28,662
------------- -------------
154,658 136,024
------------- -------------
Operating loss (61,030) (53,032)
OTHER INCOME
Investment income, net 9,646 3,191
Other, net 1,106 12
------------- -------------
10,752 3,203
Loss from continuing operations before income tax benefit (50,278) (49,829)
Income tax benefit (19,105) (19,380)
------------- -------------
Net loss from continuing operations (31,173) (30,449)
Net loss from discontinued operations (less applicable
income tax benefit of ($6,730)) - (10,782)
------------- -------------
Net loss $ (31,173) $ (41,231)
============= =============
Weighted average number of common shares outstanding 99,122 104,552
============= =============
Basic and diluted net loss per share from continuing operations $ (.31) $ (.29)
============= =============
Basic and diluted net loss per share $ (.31) $ (.39)
============= =============
Dividends per share $ .25 $ .20
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 5
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 31,
-----------
1998 1997
---- ----
REVENUES
<S> <C> <C>
Service revenues $ 111,639 $ 86,829
Product revenues 51,796 28,212
Royalties 4,062 4,418
Other 5,018 2,743
------------- -------------
172,515 122,202
------------- -------------
OPERATING EXPENSES
Employee compensation and benefits 92,706 72,042
Occupancy and equipment 82,559 73,711
Interest 35,831 21,540
Marketing and advertising 12,290 11,729
Supplies, freight and postage 8,622 7,734
Other 60,168 49,177
------------- -------------
292,176 235,933
------------- -------------
Operating loss (119,661) (113,731)
OTHER INCOME
Investment income, net 23,536 8,381
Other, net 1,106 12
------------- -------------
24,642 8,393
Loss from continuing operations before income tax benefit (95,019) (105,338)
Income tax benefit (36,107) (40,028)
------------- -------------
Net loss from continuing operations (58,912) (65,310)
Net loss from discontinued operations (less applicable
income tax benefit of ($8,218)) - (14,056)
------------- -------------
Net loss $ (58,912) $ (79,366)
============= =============
Weighted average number of common shares outstanding 102,049 104,327
============= =============
Basic and diluted net loss per share from continuing operations $ (.58) $ (.63)
============= =============
Basic and diluted net loss per share $ (.58) $ (.76)
============= =============
Dividends per share $ .45 $ .40
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 6
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED, AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 31,
-----------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (58,912) $ (79,366)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 26,884 19,034
Other noncurrent liabilities 2,457 2,457
Changes in:
Receivables (563,792) 215,320
Prepaid expenses and other current assets (50,287) (26,922)
Net assets of discontinued operations - 13,304
Accounts payable, accrued expenses and deposits (28,351) (90,562)
Accrued salaries, wages and payroll taxes (84,351) (102,073)
Accrued taxes on earnings (294,179) (75,814)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (1,050,531) (124,622)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (198,969) (132,328)
Maturities of marketable securities 564,988 188,309
Purchases of property and equipment (14,896) (6,826)
Excess of cost over fair value of net tangible assets acquired,
net of cash acquired (16,513) (227,787)
Other, net (11,024) (16,016)
-------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 323,586 (194,648)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (3,277,627) (6,045,212)
Proceeds from issuance of notes payable 3,870,614 5,887,832
Proceeds from issuance of long-term debt - 249,650
Dividends paid (46,248) (41,670)
Payments to acquire treasury shares (472,566) -
Proceeds from stock options exercised 59,857 27,694
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 134,030 78,294
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (592,915) (240,976)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 900,856 457,079
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 307,941 $ 216,103
============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 257,402 $ 36,272
Interest paid 33,524 18,643
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 7
H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited, dollars in thousands, except share data
1. The Consolidated Balance Sheet as of October 31, 1998, the Consolidated
Statements of Operations for the three and six months ended October 31,
1998 and 1997, and the Consolidated Statements of Cash Flows for the six
months ended October 31, 1998 and 1997 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at October 31,
1998 and for all periods presented have been made.
Reclassifications have been made to prior year and prior period amounts to
conform with the current year presentation.
Principles of consolidation: The consolidated financial statements include
the accounts of the Company, all majority-owned subsidiaries and companies
that are directly or indirectly controlled by the Company through majority
ownership or otherwise.
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, 1998 Annual Report to
Shareholders.
Operating revenues are seasonal in nature with peak revenues occurring in
the months of January through April. Thus, the six-month results are not
indicative of results to be expected for the year.
2. On January 31, 1998, the Company completed the sale of all of its interest
in CompuServe Corporation (CompuServe) to a subsidiary of WorldCom, Inc.
(WorldCom). The Consolidated Statements of Operations for the three and six
months ended October 31, 1997 and the Consolidated Statement of Cash Flows
for the six months ended October 31, 1997 reflect CompuServe as
discontinued operations. CompuServe's revenues for the three and six months
ended October 31, 1997 were $205.4 million and $411.1 million,
respectively.
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<PAGE> 8
3. Receivables consist of the following:
<TABLE>
<CAPTION>
October 31, April 30,
----------- ---------
1998 1998
---- ----
(Audited)
<S> <C> <C>
Mortgage loans held for sale $ 1,057,348 $ 448,102
Credit card loans 188,642 202,852
Other 158,532 187,597
-------------- ---------------
1,404,522 838,551
Allowance for doubtful accounts 47,493 45,314
-------------- ---------------
$ 1,357,029 $ 793,237
============== ===============
</TABLE>
4. The Company files its Federal and state income tax returns on a calendar
year basis. The Consolidated Statements of Operations reflect the effective
tax rates expected to be applicable for the respective full fiscal years.
5. Basic and diluted net loss per share is computed using the weighted average
number of shares outstanding during each period. Diluted net loss per share
excludes the impact of common stock options outstanding of 6,775,159 shares
and the conversion of 712 shares of preferred stock to common stock, as
they are antidilutive. The weighted average shares outstanding for the six
months ended decreased to 102,049,000 from 104,327,000 last year, due to
the repurchase of treasury shares by the Company during the period from
February 1998 to October 1998. The decrease was partially offset by stock
option exercises during fiscal 1998 and 1999.
6. During the six months ended October 31, 1998 and 1997, the Company issued
1,918,558 and 878,506 shares, respectively, pursuant to provisions for
exercise of stock options under its stock option plans. During the six
months ended October 31, 1998, the Company acquired 11,365,100 shares of
its common stock at an aggregate cost of $472,566.
7. CompuServe, certain current and former officers and directors of
CompuServe and the registrant have been named as defendants in six lawsuits
pending before the state and Federal courts in Columbus, Ohio. 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 in April 1996. One
state lawsuit also alleges certain oral omissions and misstatements in
connection with such offering. Relief sought in the lawsuits is
unspecified, but includes pleas for rescission and damages. One 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 were consolidated, the defendants filed a motion to dismiss
the consolidated suits, the district court stayed all proceedings pending
the outcome of the state court suits, and the United States Court of
Appeals for the Sixth Circuit affirmed such stay on November 10, 1998. The
four state court lawsuits also allege violations of various state statutes
and common law of negligent misrepresentation in addition to the 1933 Act
claims. The state lawsuits were consolidated for discovery purposes and
defendants filed a motion for summary judgment covering all four state
lawsuits. In the state lawsuits, the court entered an order in July 1998
that the suits entitled Harvey
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<PAGE> 9
Greenfield v. CompuServe Corporation, et al., Jeffrey Schnipper v.
CompuServe Corporation, and Philip Silverglate v. CompuServe Corporation,
et al. be maintained as a class action on behalf of the following class:
"All persons and entities who purchased shares of common stock of
CompuServe Corporation between April 18, 1996 pursuant to the CompuServe's
initial public offering or on the open market and July 16, 1996, and who
were damaged thereby. All named defendants to these consolidated actions,
members of their immediate families, any entity in which they have a
controlling interest, and their legal representatives, heirs, successors or
assigns are excluded from the class."
Plaintiffs Greenfield, Schnipper and Silverglate were designated as class
representatives. The Florida State Board of Administration v. CompuServe
Corporation, et al. case pending in state court was not included in the
class certification order as the plaintiff in such case did not seek class
certification of its action. As a part of the sale of its interest in
CompuServe, the Company agreed to indemnify WorldCom and CompuServe against
80.1% of any losses and expenses incurred by them with respect to these
lawsuits. The defendants are vigorously defending these lawsuits.
8. Summarized financial information for Block Financial Corporation, an
indirect, wholly owned subsidiary of the Company, is presented below.
<TABLE>
<CAPTION>
October 31, April 30,
----------- ---------
1998 1998
---- ----
(Audited)
Condensed balance sheets:
<S> <C> <C>
Cash and cash equivalents $ 26,518 $ 30,895
Finance receivables, net 1,341,162 737,005
Other assets 316,605 311,759
-------------- ---------------
Total assets $ 1,684,285 $ 1,079,659
============== ===============
Commercial paper $ 1,235,988 $ 643,002
Long-term debt 249,700 249,675
Other liabilities 60,754 57,372
Stockholder's equity 137,843 129,610
-------------- ---------------
Total liabilities and stockholder's equity $ 1,684,285 $ 1,079,659
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
October 31, October 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
Condensed statements of operations:
<S> <C> <C> <C> <C>
Revenues $ 61,727 $ 50,508 $ 123,556 $ 74,360
Earnings (loss) from operations 5,205 2,126 12,353 (4,204)
Net earnings (loss) 2,726 1,299 8,259 (2,588)
</TABLE>
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<PAGE> 10
9. The Company sells short treasury securities under an open repurchase
agreement that can be adjusted at any time by either party. The position on
certain or all of the fixed rate mortgages is closed when the Company
enters into a forward commitment to sell those mortgages. The effectiveness
of the hedge is measured by a historical and probable future high
correlation of changes in the fair value of the hedging instruments with
changes in value of the hedged item. If correlation ceases to exist, hedge
accounting will be terminated and gains or losses are recorded in revenues.
During the second quarter of fiscal 1999, the Company's short treasury
securities no longer correlated with the hedged item and, therefore, the
hedge was terminated. A loss of $2.5 million was recognized upon
termination. At October 31, 1998, the Company had no hedging instruments in
place.
10. The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130) in the first quarter of fiscal
1999. SFAS 130 requires that all changes in equity during the period,
except those resulting from investments by and distributions to owners, be
reported as "comprehensive income" in the financial statements. The
Company's comprehensive income is comprised of net earnings (loss), foreign
currency translation adjustments and the change in the net unrealized gain
or loss on marketable securities. The adoption of SFAS 130 had no effect on
the Company's consolidated financial statements. The components of
comprehensive income (loss) during the three and six months ended October
31, 1998 and 1997 were:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
October 31, October 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (31,173) $ (41,231) $ (58,912) $ (79,366)
Change in net unrealized
gain (loss) on mkt. securities 897 (568) 1,832 (105)
Change in foreign currency
translation adjustments (1,503) (1,163) (8,905) (1,269)
------------- ----------- -------------- ---------------
Comprehensive income (loss) $ (31,779) $ (42,962) $ (65,985) $ (80,740)
============= =========== ============== ===============
</TABLE>
11. In October 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise" (SFAS 134), effective for the
Company's fourth quarter of fiscal 1999. SFAS 134 requires that
mortgage-backed securities or other interests retained after a
securitization be classified based on the intent to sell or hold the
investments. The Company does not anticipate that the implementation of
SFAS 134 will have a material impact on the consolidated financial
statements.
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<PAGE> 11
12. In the first quarter of fiscal year 1999, the Company acquired operations
that management determined to be a new reportable operating segment. The
new segment, Business services, is primarily engaged in providing
accounting, tax and consulting services to business clients and tax, estate
planning and financial planning services to individuals. The Business
services segment currently offers its services through regional accounting
firms based in Kansas City, Missouri and Chicago, Illinois. Revenues of
this segment are seasonal in nature.
Information concerning the Company's operations by reportable operating
segments for the three and six months ended October 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
October 31, October 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
U.S. tax operations $ 18,400 $ 17,707 $ 30,579 $ 29,139
International tax operations 11,817 13,470 15,254 16,850
Mortgage operations 52,888 41,309 105,593 55,517
Credit card operations 8,015 9,597 16,329 18,904
Business services 1,534 - 2,864 -
Unallocated corporate 974 1,098 1,896 2,108
Inter-segment sales - (189) - (316)
------------ -------------- -------------- --------------
$ 93,628 $ 82,992 $ 172,515 $ 122,202
============ ============== ============== ==============
Earnings (loss) from
continuing operations:
U.S. tax operations $ (61,316) $ (54,808) $ (119,132) $ (104,183)
International tax operations (2,263) (1,125) (8,234) (6,249)
Mortgage operations 10,538 12,565 24,325 12,074
Credit card operations (29) (4,758) (1,995) (7,740)
Business services (135) - (249) -
Unallocated corporate (2,281) (1,569) (4,389) (2,715)
Acquisition interest expense (4,438) (3,327) (8,881) (4,908)
Investment income, net 9,646 3,193 23,536 8,383
------------ -------------- -------------- --------------
Loss from continuing operations
before income tax benefit $ (50,278) $ (49,829) $ (95,019) $ (105,338)
============ ============== ============== ==============
</TABLE>
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED IN
THIS DISCUSSION ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. SUCH RISKS
AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, YEAR 2000 READINESS OF THE
COMPANY, ITS FRANCHISEES OR THIRD PARTIES; AND ECONOMIC, COMPETITIVE,
GOVERNMENTAL AND VARIOUS OTHER FACTORS AFFECTING THE COMPANY'S OPERATIONS,
MARKETS, PRODUCTS, SERVICES AND PRICES.
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 to $502.9 million at October 31, 1998 from $866.4
million at April 30, 1998. The working capital ratio at October 31, 1998 is 1.3
to 1, compared to 1.7 to 1 at April 30, 1998. The decrease in working capital
and the working capital ratio is primarily due to the repurchase of treasury
shares and the seasonal nature of the Company's U.S. tax operations 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. The credit limits of these lines
fluctuate according to the amount of short-term borrowings outstanding during
the year.
The Company incurs short-term borrowings throughout the year to fund receivables
associated with its nonconforming mortgage loan, credit card and other financial
services programs. These short-term borrowings in the U.S. are supported by a
$1.3 billion back-up credit facility through November 1998, subject to renewal.
In November, the credit facility was increased to $1.85 billion through November
1999.
The Company's capital expenditures, treasury share purchases and dividend
payments during the first six months were funded through internally-generated
funds.
At October 31, 1998, short-term borrowings used to fund mortgage loans, credit
cards and other programs increased to $1,236.0 million from $643.0 million at
April 30, 1998 due mainly to the funding of mortgage operations. For the six
months ended October 31, 1998 and 1997, interest expense was $35.8 million and
$21.5 million, respectively. The increase in interest expense is primarily
attributable to the funding of mortgage operations with short-term borrowings
and the debt incurred to fund the acquisition of Option One Mortgage Corporation
(Option One) in June 1997.
-10-
<PAGE> 13
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. 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
Corporation. At October 31, 1998, 16.5 million shares had been repurchased. The
Company plans to continue to purchase its shares on the open market in
accordance with these authorizations, subject to various factors including the
price of the stock, availability of excess cash, the ability to maintain
financial flexibility, securities laws restrictions and other investment
opportunities available.
-11-
<PAGE> 14
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
The analysis that follows should be read in conjunction with the table below and
the Consolidated Statements of Operations found on pages 2 and 3.
THREE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. tax operations $ 18,400 $ 17,707 $ (61,316) $ (54,808)
International tax operations 11,817 13,470 (2,263) (1,125)
Mortgage operations 52,888 41,309 10,538 12,565
Credit card operations 8,015 9,597 (29) (4,758)
Business services 1,534 - (135) -
Unallocated corporate 974 1,098 (2,281) (1,569)
Acquisition interest expense - - (4,438) (3,327)
Investment income, net - - 9,646 3,193
Inter-segment sales - (189) - -
--------------- -------------- -------------- -------------
$ 93,628 $ 82,992 (50,278) (49,829)
=============== ==============
Income tax benefit (19,105) (19,380)
-------------- -------------
Net loss from continuing operations (31,173) (30,449)
Net loss from discontinued operations - (10,782)
-------------- -------------
Net loss $ (31,173) $ (41,231)
============== =============
</TABLE>
Consolidated revenues for the three months ended October 31, 1998 increased
12.8% to $93.6 million from $83.0 million reported last year. The increase is
primarily due to revenues from Mortgage operations of $52.9 million, a 28.0%
increase over last year, and revenues from the new Business services segment,
acquired in May 1998. These increases were offset by lower revenues from
International and Credit card operations.
The consolidated pretax loss from continuing operations for the second quarter
of fiscal 1999 increased to $50.3 million from $49.8 million in the second
quarter of last year. The increase is attributable to increased losses from U.S.
tax operations and decreased earnings from Mortgage operations that was
partially offset by higher investment income and improved results from Credit
card operations.
-12-
<PAGE> 15
The net loss from continuing operations was $31.2 million, or $.31 per share,
compared to $30.4 million, or $.29 per share, for the same period last year.
An analysis of operations by reportable operating segments follows.
U.S. TAX OPERATIONS
Revenues increased 3.9% to $18.4 million from $17.7 million last year, resulting
primarily from increased revenues from sales of non-financial software.
The pretax loss increased 11.9% to $61.3 million from $54.8 million in the
second quarter of last year due to normal operational increases in compensation
and benefits and rent expenses. In addition to the normal increases, rent
expense increased due to the amount of tax office space maintained under lease
during this year's off-season and employee benefits expense increased due to
employer taxes paid on the exercise of non-qualified seasonal stock options. Due
to the nature of this segment's business, second quarter operating results are
not indicative of expected results for the entire fiscal year.
INTERNATIONAL TAX OPERATIONS
Revenues decreased 12.3% to $11.8 million compared to the prior year's second
quarter. The decrease is principally attributable to Australia operations. In
local currency, Australia reported a 7.7% increase in revenues. However, due to
the decline in the value of the Australian dollar compared to the U.S. dollar,
Australia revenues in U.S. dollars declined $1.6 million.
The pretax loss increased 101.2% to $2.3 million from $1.1 million last year.
The increase is due to the impact of translation from Australian dollars, the
continued expansion in the United Kingdom and normal operational increases in
compensation and other facility-related expenses in Canada. Due to the nature of
this segment's business, second quarter operating results are not indicative of
expected results for the entire fiscal year.
MORTGAGE OPERATIONS
Revenues increased 28.0% to $52.9 million from $41.3 million in the same period
last year. The increase is attributable to a higher volume of loan sales and
increased interest income over the prior year. Option One originated and sold
$837.9 million and $539.6 million in loans, respectively, during the second
quarter of fiscal 1999, compared to $499.0 million originated and $474.6 million
sold in the second quarter last year. Companion Mortgage contributed improved
revenues due to interest income earned on higher balances of mortgage loans held
for sale. These increases were reduced by a one-time loss of $2.5 million on the
termination of a hedging instrument.
Mortgage operations pretax earnings of $10.5 million declined this year compared
to earnings of $12.6 million during the second quarter of fiscal 1998. The
decline in earnings is due to the timing of loan sales and increased
compensation, and occupancy and equipment expenses due to the expansion of
Option One's operations. Option One contributed $10.2 million this quarter
compared to $13.3 million in the same period last year.
-13-
<PAGE> 16
CREDIT CARD OPERATIONS
Revenues decreased 16.5% to $8.0 million from $9.6 million in the prior year due
to a decline in the average revolving credit card balance by 19.6% from the
second quarter of fiscal 1998.
The pretax loss declined 99.4% to $29 thousand from $4.8 million last year. The
decrease is attributable to (1) lower expenses from bad debts and marketing and
advertising; (2) the write-off of $1.5 million in capitalized salaries in the
second quarter last year; (3) the sale of WebBank resulting in a $1.1 million
pretax gain; and (4) the winding down of online services this year.
BUSINESS SERVICES
Business services is a new reportable operating segment for fiscal year 1999.
Business services contributed revenues of $1.5 million and a pretax loss of $135
thousand for the second quarter of fiscal 1999, including goodwill amortization
of $88 thousand. Due to the nature of this segment's business, revenues are
slightly seasonal, while expenses are relatively fixed throughout the year.
Results for the second quarter are not indicative of the expected results for
the entire year.
INVESTMENT INCOME, NET
Net investment income increased 202.1% to $9.6 million from $3.2 million last
year. The increase is due to additional funds available for investment resulting
from the proceeds of the monetization of WorldCom, Inc. stock during fiscal
1998.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the second quarter
increased 45.4% to $2.3 million from $1.6 million in the comparable period last
year. The increase is a result of higher losses at the Company's captive
insurance subsidiary, increased employee costs and the start-up of a business
that offers financial planning services through the Company's tax offices.
Acquisition interest expense of $4.4 million represents the interest on the debt
associated with the acquisition of Option One.
-14-
<PAGE> 17
THREE MONTHS ENDED OCTOBER 31, 1998 (SECOND QUARTER) COMPARED TO
THREE MONTHS ENDED JULY 31, 1998 (FIRST QUARTER)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
----------------------- ---------------------------
2nd Qtr 1st Qtr 2nd Qtr 1st Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. tax operations $ 18,400 $ 12,179 $ (61,316) $ (57,816)
International tax operations 11,817 3,437 (2,263) (5,971)
Mortgage operations 52,888 52,705 10,538 13,787
Credit card operations 8,015 8,314 (29) (1,966)
Business services 1,534 1,330 (135) (114)
Unallocated corporate 974 922 (2,281) (2,108)
Acquisition interest expense - - (4,438) (4,443)
Investment income, net - - 9,646 13,890
Inter-segment sales - - - -
---------- --------- ---------- ---------
$ 93,628 $ 78,887 (50,278) (44,741)
========== =========
Income tax benefit (19,105) (17,002)
---------- ---------
Net loss from continuing operations (31,173) (27,739)
Net loss from discontinued operations - -
---------- ---------
Net loss $ (31,173) $ (27,739)
========== =========
</TABLE>
Consolidated revenues for the three months ended October 31, 1998 increased
18.7% to $93.6 million from $78.9 million reported in the first quarter of
fiscal 1999. The increase is primarily due to revenues from International tax
and U.S. tax operations related to the Australian tax filing season and tuition
tax school fees in the U.S. and Canada.
The consolidated pretax loss from continuing operations for the second quarter
of fiscal 1999 increased to $50.3 million from $44.7 million in the first
quarter of this year. The increase is attributable to decreased investment
income, increased losses from U.S. tax operations and a decline in earnings from
Mortgage operations.
The net loss from continuing operations was $31.2 million, or $.31 per share,
compared to $27.7 million, or $.26 per share, for the first quarter.
An analysis of operations by reportable operating segments follows.
-15-
<PAGE> 18
U.S. TAX OPERATIONS
Revenues increased 51.1% to $18.4 million from $12.2 million in the first
quarter, resulting primarily from tuition tax school fees, which contributed
$5.7 million to the increase. Tuition tax school fees are seasonal.
The pretax loss increased 6.1% to $61.3 million from $57.8 million in the three
months ended July 31, 1998. The increased loss is due to increased marketing and
advertising and supplies expenses related to tuition tax schools and increased
employee benefits due to employer taxes paid on the exercise of non-qualified
seasonal stock options.
INTERNATIONAL TAX OPERATIONS
Revenues increased to $11.8 million compared to the first quarter revenues of
$3.4 million. The increase is entirely due to the onset of the tax season in
Australia, which contributed $9.2 million to the increase. The increase was
partially offset by a decline in tax preparation and discounted return fees in
Canada due to a decrease in the number of returns prepared.
The pretax loss decreased 62.1% to $2.3 million from $6.0 million in the first
quarter. The improved results are attributable to the Australian tax-filing
season which contributed earnings of $3.5 million compared to a pretax loss of
$1.2 million in the quarter ended July 31, 1998. The improved results were
reduced by increased losses in Canada due to increased marketing and advertising
and supplies expenses.
MORTGAGE OPERATIONS
Revenues increased 0.3% to $52.9 million from $52.7 million in the prior
quarter. The increase is due to interest income earned on higher balances of
mortgage loans held for sale at Companion Mortgage. Decreased revenues at Option
One, resulting from the timing of loan sales, offset this increase.
Pretax earnings decreased 23.6% to $10.5 million from $13.8 million in the three
months ended July 31, 1998. The decline is principally due to Option One, which
contributed earnings of $10.2 million, a 27.2% decline, and increased losses
from an equity investment. These losses were partially offset by improved
results from the Company's other mortgage entities.
CREDIT CARD OPERATIONS
Revenues decreased 3.6% to $8.0 million from $8.3 million in the prior quarter
due to a decline in the average revolving credit card balance by 3.1% from the
first quarter of fiscal 1999.
The pretax loss declined 98.5% to $29 thousand from $2.0 million in the first
quarter. The decrease is attributable to lower bad debt expense and the $1.1
million pretax gain on the sale of WebBank.
-16-
<PAGE> 19
BUSINESS SERVICES
Business services is a new reportable operating segment for fiscal year 1999.
Revenues increased 15.3% to $1.5 million from $1.3 million in the three months
ended July 31, 1998. The pretax loss increased 18.4% to $135 thousand due to
increased compensation and national office expenses.
INVESTMENT INCOME, NET
Net investment income decreased 30.6% to $9.6 million from $13.9 million in the
first quarter of fiscal 1999. The decrease resulted from less funds available
for investment.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the second quarter
increased 8.2% to $2.3 million from $2.1 million in the first quarter. The
increase is due to higher employee costs and the timing of legal and audit
expenses.
-17-
<PAGE> 20
SIX MONTHS ENDED OCTOBER 31, 1998 COMPARED TO
SIX MONTHS ENDED OCTOBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. tax operations $ 30,579 $ 29,139 $ (119,132) $ (104,183)
International tax operations 15,254 16,850 (8,234) (6,249)
Mortgage operations 105,593 55,517 24,325 12,074
Credit card operations 16,329 18,904 (1,995) (7,740)
Business services 2,864 - (249) -
Unallocated corporate 1,896 2,108 (4,389) (2,715)
Acquisition interest expense - - (8,881) (4,908)
Investment income, net - - 23,536 8,383
Inter-segment sales - (316) - -
--------------- -------------- -------------- -------------
$ 172,515 $ 122,202 (95,019) (105,338)
=============== ==============
Income tax benefit (36,107) (40,028)
-------------- -------------
Net loss from continuing operations (58,912) (65,310)
Net loss from discontinued operations - (14,056)
-------------- -------------
Net loss $ (58,912) $ (79,366)
============== =============
</TABLE>
Consolidated revenues for the six months ended October 31, 1998 increased 41.2%
to $172.5 million from $122.2 million reported last year. The increase is
primarily due to revenues from Mortgage operations of $105.6 million, a 90.2%
increase over last year.
The consolidated pretax loss from continuing operations for the first six months
of fiscal 1999 decreased to $95.0 million from $105.3 million last year. The
decrease is attributable to increased investment income and increased earnings
from Mortgage operations and Credit card operations, which were reduced by
increased losses from U.S. tax operations.
The net loss from continuing operations was $58.9 million, or $.58 per share,
compared to $65.3 million, or $.63 per share, for the same period last year.
An analysis of operations by reportable operating segments follows.
-18-
<PAGE> 21
U.S. TAX OPERATIONS
Revenues increased 4.9% to $30.6 million from $29.1 million last year, resulting
primarily from higher non-financial software sales and tax preparation fees,
which is attributable to increases in pricing.
The pretax loss increased 14.3% to $119.1 million from $104.2 million in the
comparable period last year due to normal operational increases in compensation,
rent and other facility-related expenses. Also contributing to the increases in
rent and other facility-related expenses is an increase in the amount of tax
office space maintained under lease during this year's off-season. Due to the
nature of this segment's business, the six month operating results are not
indicative of expected results for the entire fiscal year.
INTERNATIONAL TAX OPERATIONS
Revenues decreased 9.5% to $15.3 million compared to the prior year. The
decrease is entirely due to foreign currency translation. In local currencies,
revenues increased for all international entities.
The pretax loss increased 31.8% to $8.2 million from $6.2 million last year. The
increase is due to continued expansion in the United Kingdom and normal
operational increases in other facility-related expenses in Canada. Due to the
nature of this segment's business, the six month operating results are not
indicative of expected results for the entire fiscal year.
MORTGAGE OPERATIONS
Revenues increased 90.2% to $105.6 million from $55.5 million in the same period
last year. The increase is essentially attributable to Option One, which was
acquired on June 17, 1997. Option One contributed revenues of $87.9 million for
the six months compared to $46.8 million for the four-and-a-half month period
last year. Option One originated and sold $1.6 billion and $1.2 billion in
loans, respectively, during the first six months of fiscal 1999. Companion
Mortgage also contributed improved revenues due to interest income earned on
higher balances of mortgage loans held for sale.
Pretax earnings increased 101.5% to $24.3 million from $12.1 million in the
prior year. The increase is primarily due to Option One, which contributed
earnings of $24.2 million compared to earnings of $12.9 million last year and
increased earnings from Companion Mortgage. Earnings were reduced by losses from
the Company's other mortgage entities.
CREDIT CARD OPERATIONS
Revenues decreased 13.6% to $16.3 million from $18.9 million in the prior year
due to a decline in the average revolving credit card balance over the prior
year's six month period.
The pretax loss declined 74.2% to $2.0 million from $7.7 million last year. The
decrease is attributable to lower marketing and advertising expenses, as well as
the one-time write-off of capitalized salaries taken in the prior year and the
sale of WebBank.
-19-
<PAGE> 22
BUSINESS SERVICES
Business services is a new reportable operating segment for fiscal year 1999.
Business services contributed revenues of $2.9 million and a pretax loss of $249
thousand for the six months ended October 31, 1998, including goodwill
amortization of $161 thousand. Due to the nature of this segment's business,
revenues are slightly seasonal, while expenses are relatively fixed throughout
the year. Results for the six months are not indicative of the expected results
for the entire year.
INVESTMENT INCOME, NET
Net investment income increased 180.8% to $23.5 million from $8.4 million last
year. The increase is due to additional funds available for investment resulting
from the proceeds of the monetization of WorldCom, Inc. stock during fiscal
1998.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the six months
increased 61.7% to $4.4 million from $2.7 million in the comparable period last
year. The increase is a result of higher losses incurred by the Company's
captive insurance subsidiary and the start-up of a business that offers
financial planning services through the Company's tax offices.
Acquisition interest expense of $8.9 million represents the interest on the debt
associated with the acquisition of Option One, which was acquired on June 17,
1997.
OTHER ISSUES
YEAR 2000 READINESS DISCLOSURE
The Company has established a program to identify, evaluate and mitigate
potential Year 2000 related issues. As part of its program, the Company has
identified three key categories of software and systems, including information
technology (IT) systems, non-IT systems (systems with internal clocks or
imbedded microprocessors) and systems of third parties with which it interacts,
for which the Company has developed detailed plans to address the Year 2000
issue.
The Company has identified 9 mission critical business functions (i.e. U.S. tax
preparation services, wholesale loan services, etc.) and 28 non-mission critical
business functions (i.e. TaxCut software, Australian tax operations, etc.).
Within each of the business functions key IT and non-IT systems have been
inventoried and assessed for compliance and detailed plans are in place for
required system modifications or replacements. Currently remediation projects
are at different phases of completion. One hundred and thirty-three remediation
projects, including both IT and non-IT systems, were identified within the 9
mission critical business functions. Of these projects, 11 are complete and
successfully tested, 95 are in the testing phase and 27 are still in progress.
Of the projects in the testing phase, 91% are scheduled to be completed by
January 31, 1999. The remaining projects in testing can not be fully completed
and in production until after the 1998 tax season due to the nature of our
business.
-20-
<PAGE> 23
The Company has initiated communications and surveyed state, Federal and foreign
governments and suppliers with which it interacts to determine their plans for
addressing Year 2000 issues. The Company is relying on their responses to
determine if key suppliers will be Year 2000 compliant. One of the Company's key
third parties is the Internal Revenue Service (IRS). In a report from the
Government Accounting Office, dated May 7, 1998, some risks were identified in
relation to the IRS's readiness and contingency plans for Year 2000 issues. The
IRS is scheduled to be Year 2000 compliant by January 31, 1999. The Company is
also in the process of completing a survey and inventory of tax franchisees.
Some readiness issues have been identified and the Company is assisting its
franchisees with their remediation programs to help mitigate their risk.
Assurances from franchisees of Year 2000 readiness are scheduled to be obtained
after the end of the upcoming tax season. The Company will continue to monitor
its third party relationships for Year 2000 issues.
Costs associated with the Year 2000 issue are being expensed as incurred. Total
costs are currently estimated at $3.0 million, with approximately $1.0 million
incurred to date. The costs associated with the replacement of computer systems,
hardware or equipment (currently estimated to be $12.5 million in total, with
$8.6 million incurred to date), substantially all of which would be capitalized,
are not included in the above estimates. All costs related to the Year 2000
issue are being funded through internally-generated funds.
The Company's most likely, worst case potential risk is that the IRS will not be
Year 2000 compliant and the Company would not be able to process electronic
filings or refund anticipation loans. The Company believes that its competitors
will face the same risks.
The Company is currently identifying and developing contingency plans for Year
2000 related interruptions in the event that internal and/or external
remediation projects are not completed on a timely basis or that they fail to
meet anticipated needs. The contingency plans are scheduled to be completed by
June 1999.
The Company's Year 2000 program is an ongoing process and the estimates of
costs, risks and completion dates are based on currently available information
and are subject to change.
While the Company does not anticipate any major interruptions of its business
activities, it can not make any assurances that its systems, the systems of the
state, Federal and foreign governments, tax franchisees and suppliers will be
Year 2000 compliant and will not interrupt business. While the impact can not be
fully determined, the inability of these systems to be ready could result in
significant difficulties in processing and completing fundamental transactions.
In such event, the Company's results of operations and financial position could
be adversely affected in a material manner.
-21-
<PAGE> 24
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As of October 31, 1998, there has been a change in the Company's market risk
exposure related to interest rates on investments in fixed-rate mortgage loans
held for resale or securitization. As previously reported in the Company's
Annual Report on Form 10-K for April 30, 1998, the Company hedged its fixed-rate
mortgage portfolio by selling short treasury securities and utilizing forward
commitments. This is still the Company's policy, however, due to market
conditions it became apparent that the performance of selling short treasury
securities was not correlating with the value of fixed-rate mortgages in the
whole loan market. Therefore, at October 31, 1998 the Company has no outstanding
hedges to minimize market risk on the fixed-rate mortgage loan portfolio. The
Company is evaluating other alternatives to minimize market risk. At October 31,
1998, the fixed-rate portfolio represents 19.5% of all mortgage loans held for
sale and 8.0% of total assets. Mortgage loans held for sale are recorded at the
lower of cost or market value. If it is determined that the market value drops
below cost, a valuation allowance would be set up and the loss would be
recognized in the current period. No valuation allowance has been recorded at
October 31, 1998.
The Company estimates that an increase in interest rates on fixed-rate mortgages
of 50 basis points would result in a decline in value of approximately $5.3
million, which would be recorded as a loss in the consolidated income statement
to the extent that the market value dropped below cost. Such impact would
represent approximately 21.6% of the pretax earnings from Mortgage operations
and 5.5% of the Company's consolidated pretax loss for the six months ended
October 31, 1998, assuming the entire decline was recognized as a lower of cost
or market adjustment.
-22-
<PAGE> 25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The lawsuits discussed herein were reported in the Form 10-Q for the first
quarter of fiscal 1999. CompuServe, certain current and former officers and
directors of CompuServe and the registrant have been named as defendants in
six lawsuits pending before the state and Federal courts in Columbus, Ohio.
All suits involve claims based on allegations of omissions and
misstatements of fact in connection with CompuServe's initial public
offering in April 1996. Relief sought in the lawsuits is unspecified, but
includes pleas for rescission and damages. The Federal suits were
consolidated, the defendants filed a motion to dismiss the consolidated
suits, the district court stayed all proceedings pending the outcome of the
state court suits, and the United States Court of Appeals for the Sixth
Circuit affirmed such stay on November 10, 1998. The state lawsuits were
consolidated for discovery purposes and defendants filed a motion for
summary judgment covering all four state lawsuits. In the state lawsuits,
the court entered an order in July 1998 that the suits entitled Harvey
Greenfield v. CompuServe Corporation, et al., Jeffrey Schnipper v.
CompuServe Corporation, and Philip Silverglate v. CompuServe Corporation,
et al. be maintained as a class action on behalf of the following class:
"All persons and entities who purchased shares of common stock of
CompuServe Corporation between April 18, 1996 pursuant to the CompuServe's
initial public offering or on the open market and July 16, 1996, and who
were damaged thereby. All named defendants to these consolidated actions,
members of their immediate families, any entity in which they have a
controlling interest, and their legal representatives, heirs, successors or
assigns are excluded from the class."
Plaintiffs Greenfield, Schnipper and Silverglate were designated as class
representatives. The Florida State Board of Administration v. CompuServe
Corporation, et al. case pending in state court was not included in the
class certification order as the plaintiff in such case did not seek class
certification of its action. The defendants continue to vigorously defend
these lawsuits.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The registrant's Amended and Restated Bylaws ("Bylaws") were amended on
October 14, 1998, to require that all shareholders who wish to present
proposals for business at the annual meeting of shareholders give the
Company notice of such proposals at least 45 days before the date on which
the registrant first mailed its proxy materials for the prior year's annual
meeting of shareholders, thereby allowing the registrant to have
discretionary authority for proposals received after that date. Previously,
the Bylaws had provided in Section 4(b) thereof that, to be timely, such
notice of proposals must have been delivered to or mailed and received by
the registrant not less than 50 nor more that 75 days prior to the annual
meeting, provided, however, that if fewer than 65 days' notice or prior
public disclosure of the date of the meeting had been given or made to
shareholders, notice by the shareholder to be timely must have been
received by the registrant not later than the close of business on the 15th
day following the day
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<PAGE> 26
on which notice of the date of the annual meeting was mailed or public
disclosure was made. Section 4(b), as amended on October 14, 1998, now
reads:
"(b) Business Conducted. At an annual meeting of shareholders,
only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual
meeting, business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board,
otherwise properly brought before the meeting by or at the direction of
the board, or otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in
writing to the secretary. To be timely, such notice must be delivered
to or mailed and received at the principal executive offices of the
corporation at least 45 days before the date in the year of the annual
meeting corresponding to the date on which the corporation first mailed
its proxy materials for the prior year's annual meeting of
shareholders. A shareholder's notice to the secretary shall set forth
as to each matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of
shares of the corporation that are beneficially owned by the
shareholder, and (iv) any material interest of the shareholder in such
business.
Notwithstanding anything in the bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance
with the procedures set forth in this section 4(b); provided, however,
that nothing in this section 4(b) shall be deemed to preclude
discussion by any shareholder of any business properly brought before
the annual meeting in accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this
section 4(b), and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting
shall not be transacted."
As a result of the amendment to the Bylaws, for business to be timely and
properly brought before the annual meeting scheduled to be held on
Wednesday, September 8, 1999, notice of proposals which are proper subjects
for consideration thereat must be delivered to or mailed and received by
the Secretary of the registrant at H&R Block, Inc., 4400 Main Street,
Kansas City, Missouri 64111 not later than the close of business on June
15, 1999, the 45th day prior to July 30 (the date on which proxy materials
were first mailed to shareholders in connection with the annual meeting of
shareholders in 1998). As stated in the proxy statement dated July 30,
1998, shareholder proposals must be received by the Secretary of the
registrant no later than April 1, 1999, in order to be included in the
proxy statement and form of proxy relating to the annual meeting of
shareholders in 1999.
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<PAGE> 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the registrant was held on September
9, 1998. At such meeting, four Class III directors were elected to serve
three-year terms. In addition, the resolutions set forth below were
submitted to a vote of shareholders. With respect to the election of
directors and the adoption of each resolution, the number of votes cast
for, against or withheld, and the number of abstentions were as follows:
Election of Class III Directors
Nominee Votes FOR Votes WITHHELD
----------------- ---------- --------------
Donna R. Ecton 78,906,626 9,034,630
Marvin L. Rich 78,857,422 9,083,834
Louis W. Smith 78,888,502 9,052,754
Morton I. Sosland 78,796,354 9,144,902
Approval of Amendments to the Registrant's 1989 Stock Option Plan for
Outside Directors
The following resolution was adopted by a vote of 82,026,187 shares in
favor of such resolution, 5,255,764 shares against such resolution and
659,305 shares abstaining. The resolution states:
"RESOLVED, That this Company's 1989 Stock Option Plan
for Outside Directors, as previously amended, be further
amended as follows:
(1) By changing the date set forth in Section 21
thereof from `December 5, 1999,' to `December 5, 2001,'
thereby extending the Plan for two years; and
(2) By changing the number of shares set forth in
Section 6 thereof from `2,000' to `3,000,' thereby increasing
the aggregate number of shares of Common Stock to be granted
on each date specified in such Section 6 to each Outside
Director of the Company serving as such on the date of grant."
Appointment of Auditors
The following resolution was adopted by a vote of 87,608,251 shares in
favor of such resolution, 128,888 shares against such resolution and
204,117 shares abstaining:
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<PAGE> 28
"RESOLVED, That the appointment of
PricewaterhouseCoopers LLP as the independent auditors for H&R
Block, Inc., and its subsidiaries for the year ending April
30, 1999, is hereby ratified, approved and confirmed."
At the close of business on July 10, 1998, the record date for the annual
meeting of shareholders, there were 104,732,851 shares of Common Stock of
the registrant outstanding and entitled to vote at the meeting. There were
87,941,256 shares represented at the annual meeting of shareholders held on
September 9, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
3.1 Amended and Restated Bylaws of the registrant, as amended
October 14, 1998.
10.1 1989 Stock Option Plan for Outside Directors, as amended.
10.2 Amendment No. 11 to the H&R Block Deferred Compensation
Plan for Executives.
10.3 Amendment No. 7 to the H&R Block Supplemental Deferred
Compensation Plan for Executives.
27 Financial Data Schedule
b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the second
quarter of fiscal 1999.
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<PAGE> 29
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.
<TABLE>
<CAPTION>
<S> <C>
H&R BLOCK, INC.
---------------------------
(Registrant)
DATE 12/15/98 BY /s/ Ozzie Wenich
------------ ---------------------------
Ozzie Wenich
Senior Vice President and
Chief Financial Officer
DATE 12/15/98 BY /s/ Cheryl L. Givens
------------- ---------------------------
Cheryl L.Givens
Vice President and Corporate Controller
</TABLE>
-27-
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
BYLAWS
OF
H & R BLOCK, INC.
(As amended through October 14, 1998)
OFFICES
1. OFFICES. The corporation shall maintain a registered office in the
State of Missouri, and shall have a resident agent in charge thereof. The
location of the registered office and name of the resident agent shall be
designated in the Articles of Incorporation, or by resolution of the board of
directors, on file in the appropriate offices of the State of Missouri. The
corporation may maintain offices at such other places within or without the
State of Missouri as the board of directors shall designate.
SEAL
2. SEAL. The corporation shall have a corporate seal inscribed with
the name of the corporation and the words "Corporate Seal - Missouri". The form
of the seal may be altered at pleasure and shall be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced or otherwise used.
SHAREHOLDERS' MEETINGS
3. PLACE OF MEETINGS. All meetings of the shareholders shall be held
at the principal office of the corporation in Missouri, except such meetings as
the board of directors (to the extent permissible by law) expressly determines
shall be held elsewhere, in which case such meetings may be held at such other
place or places, within or without the State of Missouri, as the board of
directors shall have determined.
4. ANNUAL MEETING. (a) DATE AND TIME. The annual meeting of
shareholders shall be held on the first Wednesday in September of each year, if
not a legal holiday, and if a legal holiday, then on the first business day
following, at 9:00 a.m., or on such other date as the board of directors may
specify, when directors shall be elected and such other business transacted as
may be properly brought before the meeting.
(b) Business Conducted. At an annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board, otherwise properly brought before the meeting by or
at the direction of the board, or otherwise properly brought before the meeting
by a shareholder. In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the secretary.
To be timely, such notice must be delivered to
<PAGE> 2
or mailed and received at the principal executive offices of the corporation at
least 45 days before the date in the year of the annual meeting corresponding to
the date on which the corporation first mailed its proxy materials for the prior
year's annual meeting of shareholders. A shareholder's notice to the secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the shareholder proposing
such business, (iii) the class and number of shares of the corporation that are
beneficially owned by the shareholder, and (iv) any material interest of the
shareholder in such business.
Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this section 4(b); provided, however, that nothing in
this section 4(b) shall be deemed to preclude discussion by any shareholder of
any business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this section 4(b), and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
5. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the chairman of the board or by the president, or at any
time upon the written request of a majority of the board of directors, or upon
the written request of the holders of not less than 80% of the stock of the
corporation entitled to vote in an election of directors. Each call for a
special meeting of the shareholders shall state the time, the day, the place and
the purpose or purposes of such meeting and shall be in writing, signed by the
persons making the same and delivered to the secretary. No business shall be
transacted at a special meeting other than such as is included in the purposes
stated in the call.
6. CONDUCT OF ANNUAL AND SPECIAL MEETINGS. The chairman of the board,
or in his absence the president, shall preside as the chairman of the meeting at
all meetings of the shareholders. The chairman of the meeting shall be vested
with the power and authority to (i) maintain control of and conduct an orderly
meeting; (ii) exclude any shareholder from the meeting for failing or refusing
to comply with any of the procedural standards or rules or conduct or any
reasonable request of the chairman; and (iii) appoint inspectors of elections,
prescribing their duties, and administer any oath that may be required under
Missouri law.
7. NOTICES. Written or printed notice of each meeting of the
shareholders, whether annual or special, stating the place, date and time
thereof and in case of a special meeting, the purpose or purposes thereof shall
be delivered or mailed to each shareholder entitled to vote thereat, not less
than ten nor more than fifty days prior to the meeting, unless, as to a
particular matter, other or further notice is required by law, in which case
such other or further notice shall be given. Any notice of a shareholders'
meeting sent by mail shall be deemed to be delivered when deposited in the
United States mail with postage prepaid thereon, addressed to the shareholder at
his address as it appears on the books of the corporation.
<PAGE> 3
8. WAIVER OF NOTICE. Whenever any notice is required to be given under
the provisions of these bylaws, the Articles of Incorporation of the
corporation, or of any law, a waiver thereof, if not expressly prohibited by
law, in writing signed by the person or persons entitled to such notice, shall
be deemed the equivalent to the giving of such notice.
9. QUORUM. Except as otherwise may be provided by law, by the Articles
of Incorporation of the corporation or by these bylaws, the holders of a
majority of the shares issued and outstanding and entitled to vote thereat,
present in person or by proxy, shall be required for and shall constitute a
quorum at all meetings of the shareholders for the transaction of business.
Every decision of a majority in amount of shares of such quorum shall be valid
as a corporate act, except in those specific instances in which a larger vote is
required by law or by the Articles of Incorporation. If a quorum be not present
at any meeting, the shareholders entitled to vote thereat, present in person or
by proxy, shall have power to adjourn the meeting to a specified date not longer
than 90 days after such adjournment without notice other than announcement at
the meeting, until the requisite amount of voting shares shall be present. At
such adjourned meeting at which the requisite amount of voting shares shall be
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
10. PROXIES. At any meeting of the shareholders, every shareholder
having the right to vote shall be entitled to vote in person or by proxy
appointed by an instrument in writing subscribed by such shareholder and bearing
a date not more than eleven months prior to said meeting unless said instrument
provides that it shall be valid for a longer period.
11. VOTING. Each shareholder shall have one vote for each share of
stock having voting power registered in his name on the books of the corporation
and except where the transfer books of the corporation shall have been closed or
a date shall have been fixed as a record date for the determination of its
shareholders entitled to vote, no share of stock shall be voted at any election
for directors which shall have been transferred on the books of the corporation
within fifty days preceding such election of directors.
Shareholders shall have no right to vote cumulatively for the election
of directors.
A shareholder holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and a shareholder whose stock is pledged shall be
entitled to vote unless, in the transfer by the pledgor on the books of the
corporation, he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee or his proxy may represent said stock and vote
thereon.
12. SHAREHOLDERS' LISTS. A complete list of the shareholders entitled
to vote at every election of directors, arranged in alphabetical order, with the
address of and the number of voting shares held by each shareholder, shall be
prepared by the officer having charge of the stock books of the corporation and
for at least ten days prior to the date of the election shall be open at the
place where the election is to beheld, during the usual hours for business, to
the examination of any shareholder and shall be produced and kept open at the
place of the election during the whole time thereof to the inspection of any
shareholder present. The original or duplicate stock ledger shall be the only
evidence as to who are shareholders entitled to examine such lists, or the books
of the corporation, or to vote in
<PAGE> 4
person or by proxy, at such election. Failure to comply with the foregoing shall
not affect the validity of any action taken at any such meeting.
13. RECORDS. The corporation shall maintain such books and records as
shall be dictated by good business practice and by law. The books and records of
the corporation may be kept at any one or more offices of the corporation within
or without the State of Missouri, except that the original or duplicate stock
ledger containing the names and addresses of the shareholders, and the number of
shares held by them, shall be kept at the registered office of the corporation
in Missouri. Every shareholder shall have a right to examine, in person, or by
agent or attorney, at any reasonable time, for any reasonable purpose, the
bylaws, stock register, books of account, and records of the proceedings of the
shareholders and directors, and to make copies of or extracts from them.
DIRECTORS
14. NUMBER AND POWERS OF THE BOARD. The property and business of this
corporation shall be managed by a board of directors, and the number of
directors to constitute the board shall be not less than nine nor more than
fifteen, the exact number to be fixed by a resolution adopted by the affirmative
vote of a majority of the whole board of directors, but shall be twelve until
and unless so fixed. Directors need not be shareholders. In addition to the
powers and authorities by these bylaws expressly conferred upon the board of
directors, the board may exercise all such powers of the corporation and do or
cause to be done all such lawful acts and things as are not prohibited, or
required to be exercised or done by the shareholders only.
15. INCUMBENCY OF DIRECTORS. (a) ELECTION AND TERM OF OFFICE. The
directors of the corporation shall be divided into three classes: Class I, Class
II and Class III. Membership in such classes shall be as nearly equal as
possible and any increase or decrease in the number of directors shall be
apportioned by the board of directors among the classes to maintain the number
of directors in each class as nearly equal as possible. At each annual meeting
of shareholders, directors shall be elected to succeed those whose terms then
expire and to fill any vacancies and newly created directorships not previously
filled by the board. Newly elected directors shall belong to the same class as
the directors they succeed or, with respect to newly created directorships, to
the respective classes to which such directorships are assigned by the board of
directors. The term of office of each director shall begin immediately after his
election and, except as set forth in the Articles of Incorporation as to the
terms of office of the initial directors in each class, the directors in each
class shall hold office until the third succeeding annual meeting of
shareholders after the regular election of directors of that class or until
their successors are elected and qualified and subject to prior death,
resignation, retirement or removal from office of a director. No decrease in the
number of directors constituting the board of directors shall reduce the term of
any incumbent director.
(b) REMOVAL. The entire board of directors of the corporation may be
removed at any time but only by the affirmative vote of the holders of 80% or
more of the outstanding shares of each class of stock of the corporation
entitled to elect one or more directors at a meeting of the shareholders called
for such purpose.
<PAGE> 5
16. VACANCIES. Any newly created directorship resulting from an
increase in the number of directors, and any vacancy occurring on the board of
directors through death, resignation, disqualification, disability or any other
cause, may be filled by vote of a majority of the surviving or remaining
directors then in office, although less than a quorum, or by a sole remaining
director. Any director so elected to fill a vacancy shall hold office for the
unexpired portion of the term of the director whose place shall be vacated and
until the election and qualification of his successor.
17. MEETINGS OF THE NEWLY ELECTED BOARD OF DIRECTORS - NOTICE. The
first meeting of each newly elected board, which shall be deemed the annual
meeting of the board, shall be held on the same day as the annual meeting of
shareholders, as soon thereafter as practicable, at such time and place, either
within or without the State of Missouri, as shall be designated by the
president. No notice of such meeting shall be necessary to the continuing or
newly elected directors in order legally to constitute the meeting, provided
that a majority of the whole board shall be present; or the members of the board
may meet at such place and time as shall be fixed by the consent in writing of
all of the directors.
18. NOTICE. (a) REGULAR MEETINGS. Regular meetings of the board of
directors may be held without notice at such place or places, within or without
the State of Missouri, and at such time or times, as the board of directors may
from time to time fix by resolution adopted by the whole board. Any business may
be transacted at a regular meeting.
(b) SPECIAL MEETINGS. Special meetings of the board of directors may
be called by the chairman, the president or any two directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than 48 hours before the date of the meeting, by
telephone or telegram on 24 hours' notice, or on such shorter notice as the
person or persons calling such meeting may deem necessary or appropriate in the
circumstances. The place may be within or without the State of Missouri as
designated in the notice. The "call" and the "notice" of any such meeting shall
be deemed synonymous.
19. QUORUM. At all meetings of the board of directors a majority of
the whole board shall, unless a greater number as to any particular matter is
required by statute, by the Articles of Incorporation or by these bylaws,
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the board of directors. Less than a quorum may adjourn the meeting
successively until a quorum is present, and no notice of adjournment shall be
required.
The foregoing provisions relating to a quorum for the transaction of
business shall not be affected by the fact that one or more of the directors
have or may have interests in any matter to come before a meeting of the board,
which interests are or might be adverse to the interests of this corporation.
Any such interested director or directors shall at all times be considered as
present for the purpose of determining whether or not a quorum exists, provided
such director or directors are in attendance and do not waive the right to vote.
20. NOMINATIONS FOR ELECTION AS DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as
<PAGE> 6
directors. Nominations of persons for election to the board of directors may be
made at a meeting of shareholders (i) by or at the direction of the board of
directors by any nominating committee or person appointed by the board or (ii)
by any shareholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this section 20. Such nominations, other than those made by or at the direction
of the board, shall be made pursuant to timely notice in writing to the
secretary.
To be timely, a shareholder's notice shall be delivered to or mailed
and received at the principal executive offices of the corporation not less than
50 days nor more than 75 days prior to the meeting; provided, however, that if
fewer than 65 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
received not later than the close of business on the 15th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice to the secretary shall set forth
(a) as to each person whom the shareholder proposes to nominate for election or
reelection as a director, such person's name, age, business address, residence
address, and principal occupation or employment, the class and number of shares
of capital stock of the corporation that are beneficially owned by such person,
and any other information relating to such person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as
to the shareholder giving the notice, such shareholder's name and record address
and the class and number of shares of capital stock of the corporation that are
beneficially owned by such shareholder. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as a
director of the corporation. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
21. DIRECTORS' ACTION WITHOUT MEETING. If all the directors severally
or collectively consent in writing to any action to be taken by the directors,
such consents shall have the same force and effect as a unanimous vote of the
directors at a meeting duly held. The secretary shall file such consents with
the minutes of the meetings of the board of directors.
22. WAIVER. Any notice provided or required to be given to the
directors may be waived in writing by any of them, whether before, at, or after
the time stated therein. Attendance of a director at any meeting shall
constitute a waiver of notice of such meeting except where he attends for the
express purpose of objecting to the transaction of any business thereat because
the meeting is not lawfully called or convened.
23. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, other than an action by or in
the right of the corporation, by
<PAGE> 7
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation, as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
The corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise
against expenses, including attorneys' fees, and amounts paid in settlement
actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which the action or
suit was brought determines upon application that, despite the adjudication of
liability and in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
To the extent that a director or officer of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the first two unnumbered paragraphs of this section
23, or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the action, suit or proceeding.
Any indemnification under the first two unnumbered paragraphs of this
section 23, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in this section 23. The determination
shall be made by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding,
or if such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or by the shareholders.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
the action, suit or proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be
<PAGE> 8
determined that he is entitled to be indemnified by the corporation as
authorized in this section 23.
The indemnification provided by this section 23 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled either under the Articles of Incorporation or bylaws or any agreement,
vote of shareholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
The corporation shall have the power to give any further indemnity, in
addition to the indemnity authorized or contemplated under other subsections of
this section 23, to any person who is or was a director or officer or to any
person who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, provided such further indemnity is either (i) authorized, directed
or provided for in the Articles of Incorporation of the corporation or any duly
adopted amendment thereof or (ii) authorized, directed or provided for in any
bylaw or agreement of the corporation which has been adopted by a vote of the
shareholders of the corporation, and provided further that no such indemnity
shall indemnify any person from or on account of such person's conduct which was
finally adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct. Upon adoption of this bylaw by the shareholders of the
corporation, the corporation may enter into indemnification agreements with each
director who is in office on the date of such adoption and, by vote of or
resolution adopted by a majority of a quorum of disinterested directors, with
each director who is thereafter elected a director of the corporation. The
corporation may enter into indemnification agreements with each officer of the
corporation whom the board of directors, by vote of a majority of a quorum of
disinterested directors, authorizes or may, by resolution adopted by a vote of a
majority of a quorum of disinterested directors, authorize indemnification of
any officer to the same extent as provided in such indemnification agreement,
subject to the same exception as provided therein and such additional exception
as may be set forth in such resolution. Such indemnification agreements shall be
substantially in the form attached as Annex I to the bylaws.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of this
section 23.
For the purpose of this section 23, references to "the corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation so that any person who is or was
a director or officer of such a constituent corporation or is or was serving at
the request of such constituent corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under the provisions of this section 23 with respect to the
resulting or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity.
<PAGE> 9
For purposes of this section 23, the term "other enterprise" shall
include employee benefit plans; the term "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and the term
"serving at the request of the corporation" shall include any service as a
director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section 23.
24. INTERESTS OF DIRECTORS. In case the corporation enters into
contracts or transacts business with one or more of its directors, or with any
firm of which one or more of its directors are members or with any other
corporation or association of which one or more of its directors are members,
shareholders, directors or officers, such transaction or transactions shall not
be invalidated or in any way affected by the fact that such director or
directors have or may have interests therein which are or might be adverse to
the interests of this corporation; provided that such contract or transaction is
entered into in good faith and authorized or ratified on behalf of this
corporation by the board of directors or by a person or persons (other than the
contracting person) having authority to do so, and if the directors or other
person or persons so authorizing or ratifying shall then be aware of the
interest of such contracting person. In any case in which any transaction
described in this section 24 is under consideration by the board of directors,
the board may, upon the affirmative vote of a majority of the whole board,
exclude from its presence while its deliberations with respect to such
transaction are in progress any director deemed by such majority to have an
interest in such transaction.
25. COMMITTEES. (a) EXECUTIVE COMMITTEE. The board of directors may,
by resolution or resolutions passed by a majority of the whole board, designate
an executive committee, such committee to consist of two or more directors of
the corporation, which committee, to the extent provided in said resolution or
resolutions, shall have and may exercise all of the authority of the board of
directors in the management of the corporation. The executive committee shall
keep regular minutes of its proceedings and the same shall be recorded in the
minute book of the corporation. The secretary or an assistant secretary of the
corporation may act as secretary for the committee if the committee so requests.
(b) AUDIT COMMITTEE. The corporation shall maintain an audit committee
consisting of at least three directors. No member of the audit committee shall
be an employee of the corporation. The audit committee shall use reasonable
efforts to effect the establishment and maintenance by the corporation of
adequate financial reporting and audit procedures. The audit committee shall
annually review and confirm management's proposal for the selection of the
corporation's independent public accounting firm and, following completion of
such firm's audit examination of the corporation's consolidated financial
statements, review with such firm and corporation management, such matters in
connection with the audit as deemed necessary and desirable by the audit
committee. The audit committee shall have such additional duties,
responsibilities, functions and powers as may be delegated to it by the board of
directors of the corporation. The audit committee shall be empowered to retain,
at the expense of the corporation, independent expert(s) if it deems this to be
necessary.
<PAGE> 10
(c) OTHER COMMITTEES. The board of directors may also, by resolution
or resolutions passed by a majority of the whole board, designate other
committees, with such persons, powers and duties as it deems appropriate and as
are not inconsistent with law.
26. COMPENSATION OF DIRECTORS AND COMMITTEE MEMBERS. By resolution
duly adopted by a majority of the board of directors, directors and members
shall be entitled to receive reasonable annual compensation for services
rendered to the corporation as such, and a fixed sum and expenses of attendance,
if any, may be allowed for attendance at each regular or special meeting of the
board or committee; provided that nothing herein contained shall be construed to
preclude any director or committee member from serving the corporation in any
other capacity and receiving compensation therefor.
OFFICERS
27. (a) ELECTED OFFICERS. The following officers of the corporation
shall be chosen or appointed by election by the board of directors, and shall be
deemed elected officers: a president, a secretary, and a treasurer; also, if the
board desires, a chairman of the board, a vice chairman of the board, one or
more vice presidents, one or more assistant secretaries and one or more
assistant treasurers. The chairman of the board and the vice chairman of the
board shall be deemed executive officers of the corporation, and shall be vested
with such powers, duties, and authority as the board of directors may from time
to time determine and as may be set forth in these bylaws.
Any two or more of such offices may be held by the same person, except
the offices of chairman of the board and vice chairman of the board, president
and vice president, and the offices of president and secretary.
An elected officer shall be deemed qualified when he enters upon the
duties of the office to which he has been elected and furnishes any bond
required by the board; but the board may also require of such person his written
acceptance and promise faithfully to discharge the duties of such office.
(b) ELECTION OF OFFICERS. The board of directors at each annual
meeting thereof shall elect a president from among their own number. They shall
also elect at such time a secretary and a treasurer, who need not be directors.
The board then, or from time to time, may elect a chairman of the board, a vice
chairman of the board and such vice presidents, assistant secretaries and
assistant treasurers as it may deem advisable or necessary.
(c) TERM OF OFFICE. Each elected officer of the corporation shall hold
his office for the term for which he was elected, or until he resigns or is
removed by the board, whichever first occurs.
(d) APPOINTMENT OF OFFICERS AND AGENTS - TERMS OF OFFICE. The board
from time to time may also appoint such other officers and agents for the
corporation as it shall deem necessary or advisable. All appointed officers and
agents shall hold their respective positions at the pleasure of the board or for
such terms as the board may specify, and they shall exercise such powers and
perform such duties as shall be determined from
<PAGE> 11
time to time by the board, or by an elected officer empowered by the board to
make such determinations.
28. REMOVAL. Any officer or agent elected or appointed by the board of
directors, and any employee, may be removed or discharged by the board whenever
in its judgment the best interests of the corporation would be served thereby,
but such removal shall be without a prejudice to the contract rights, if any, of
the person so removed.
29. SALARIES AND COMPENSATION. Salaries and compensation of all
elected officers of the corporation shall be fixed, increased or decreased by
the board of directors, but this power, except as to the salary or compensation
of the chairman of the board, the vice chairman of the board and the president,
may, unless prohibited by law, be delegated by the board to the chairman of the
board, the vice chairman of the board, the president or a committee. Salaries
and compensation of all other appointed officers, agents, and employees of the
corporation may be fixed, increased or decreased by the board of directors, but
until action is taken with respect thereto by the board of directors, the same
may be fixed, increased or decreased by the chairman of the board, by the
president or by such other officer or officers as may be empowered by the board
of directors to do so.
30. DELEGATION OF AUTHORITY TO HIRE, DISCHARGE, ETC. The board from
time to time may delegate to the chairman of the board, the vice chairman of the
board, the president or other officer or executive employee of the corporation,
authority to hire, discharge, and fix and modify the duties, salary or other
compensation of employees of the corporation under their jurisdiction, and the
board may delegate to such officer or executive employee similar authority with
respect to obtaining and retaining for the corporation the services of
attorneys, accountants and other experts.
31. THE CHAIRMAN OF THE BOARD, THE VICE CHAIRMAN OF THE BOARD AND THE
PRESIDENT. The chairman of the board or the president shall be elected by the
board of directors to be the chief executive officer of the corporation and the
chief executive officer shall have general and active management of the business
of the corporation and shall carry into effect all directions and resolutions of
the board. The chairman of the board, the vice chairman of the board and the
president shall be vested with such powers, duties, and authority as the board
of directors may from time to time determine and as may be set forth in these
bylaws. Except as otherwise provided for in these bylaws, the chairman of the
board, or in his absence the president, shall preside at all meetings of the
shareholders of the corporation and at all meetings of the board of directors.
The chairman of the board, vice chairman of the board or president may
execute all bonds, notes, debentures, mortgages, and other contracts requiring a
seal, under the seal of the corporation and may cause the seal to be affixed
thereto, and all other instruments for and in the name of the corporation,
except that if by law such instruments are required to be executed only by the
president, he shall execute them.
The chairman of the board, vice chairman of the board or president,
when authorized so to do by the board, may execute powers of attorney from, for,
and in the name of the corporation, to such proper person or persons as he may
deem fit, in order that thereby the business of the corporation may be furthered
or action taken as may be deemed by him necessary or advisable in furtherance of
the interests of the corporation.
<PAGE> 12
The chairman of the board, vice chairman of the board or president,
except as may be otherwise directed by the board, shall attend meetings of
shareholders of other corporations to represent this corporation thereat and to
vote or take action with respect to the shares of any such corporation owned by
this corporation in such manner as he shall deem to be for the interests of the
corporation or as may be directed by the board.
The chief executive officer shall, unless the board otherwise
provides, be an ex officio member of all standing board committees.
The chairman of the board, vice chairman of the board or president
shall have such other or further duties and authority as may be prescribed
elsewhere in these bylaws or from time to time by the board of directors.
32. VICE PRESIDENTS. The vice presidents in the order of their
seniority shall, in the absence, disability or inability to act of the chairman
of the board, the vice chairman of the board and the president, perform the
duties and exercise the powers of the chairman of the board, the vice chairman
of the board and the president, and shall perform such other duties as the board
of directors shall from time to time prescribe.
33. THE SECRETARY AND ASSISTANT SECRETARIES. The secretary shall
attend all sessions of the board and except as otherwise provided for in these
bylaws, all meetings of the shareholders, and shall record or cause to be
recorded all votes taken and the minutes of all proceedings in a minute book of
the corporation to be kept for that purpose. He shall perform like duties for
the executive and other standing committees when requested by the board or such
committee to do so.
His shall be the principal responsibility to give, or cause to be
given, notice of all meetings of the shareholders and of the board of directors,
but this shall not lessen the authority of others to give such notice as is
authorized elsewhere in these bylaws.
He shall see that all books, records, lists and information, or
duplicates, required to be maintained at the registered or home office of the
corporation in Missouri, or elsewhere, are so maintained.
He shall keep in safe custody the seal of the corporation, and when
duly authorized to do so shall affix the same to any instrument requiring it,
and when so affixed, he shall attest the same by his signature.
He shall perform such other duties and have such other authority as
may be prescribed elsewhere in these bylaws or from time to time by the board of
directors, the chairman of the board or the president, under whose direct
supervision he shall be.
He shall have the general duties, powers and responsibilities of a
secretary of a corporation.
The assistant secretaries, in the order of their seniority, in the
absence, disability or inability to act of the secretary, shall perform the
duties and exercise the powers of the secretary, and shall perform such other
duties as the board may from time to time prescribe.
<PAGE> 13
34. THE TREASURER AND ASSISTANT TREASURERS. The treasurer shall have
the responsibility for the safekeeping of the funds and securities of the
corporation, and shall keep or cause to be kept, full and accurate accounts of
receipts and disbursements in books belonging to the corporation. He shall keep,
or cause to be kept, all other books of account and accounting records of the
corporation, and shall deposit or cause to be deposited all monies and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors.
He shall disburse, or permit to be disbursed, the funds of the
corporation as may be ordered, or authorized generally, by the board, and shall
render to the chief executive officers of the corporation and the directors
whenever they may require it, an account of all his transactions as treasurer
and of those under his jurisdiction, and of the financial condition of the
corporation.
He shall perform such other duties and shall have such other
responsibility and authority as may be prescribed elsewhere in these bylaws or
from time to time by the board of directors.
He shall have the general duties, powers and responsibility of a
treasurer of a corporation, and shall be the chief financial and accounting
officer of the corporation.
The assistant treasurers in the order of their seniority shall, in the
absence, disability or inability to act of the treasurer, perform the duties and
exercise the powers of the treasurer, and shall perform such other duties as the
board of directors shall from time to time prescribe.
35. DUTIES OF OFFICERS MAY BE DELEGATED. If any officer of the
corporation be absent or unable to act, or for any other reason that the board
may deem sufficient, the board may delegate, for the time being, some or all of
the functions, duties, powers and responsibilities of any officer to any other
officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole board concurs therein.
SHARES OF STOCK
36. CERTIFICATES OF STOCK. The certificates for shares of stock of the
corporation shall be numbered, shall be in such form as may be prescribed by the
board of directors in conformity with law, and shall be entered into the stock
books of the corporation as they are issued, and such entries shall show the
name and address of the person, firm, partnership, corporation or association to
whom each certificate is issued. Each certificate shall have printed, typed or
written thereon the name of the person, firm, partnership, corporation or
association to whom it is issued, and number of shares represented thereby and
shall be signed by the president or a vice president, and the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
corporation, and sealed with the seal of the corporation, which seal may be
facsimile, engraved or printed. If the corporation has a registrar, a transfer
agent, or a transfer clerk who actually signs such certificates, the signatures
of any of the other officers above mentioned may be facsimile, engraved or
printed. In case any such officer who has signed or whose facsimile signature
has been
<PAGE> 14
placed upon any such certificate shall have ceased to be such officer before
such certificate is issued, such certificate may nevertheless be issued by the
corporation with the same effect as if such officer were an officer at the date
of its issue.
37. TRANSFERS OF SHARES - TRANSFER AGENT - REGISTRAR. Transfers of
shares of stock shall be made on the books of the corporation only by the person
named in the stock certificate or by his attorney lawfully constituted in
writing, and upon surrender of the certificate therefor. The stock record books
and other transfer records shall be in the possession of the secretary or of a
transfer agent or clerk of the corporation. The corporation by resolution of the
board may from time to time appoint a transfer agent and if desired a registrar,
under such arrangements and upon such terms and conditions as the board of
directors deems advisable; but until and unless the board appoints some other
person, firm, or corporation as its transfer agent (and upon the revocation of
any such appointment, thereafter until a new appointment is similarly made) the
secretary shall be the transfer agent or clerk of the corporation, without the
necessity of any formal action of the board of directors and the secretary shall
perform all of the duties thereof.
38. LOST CERTIFICATE. In the case of the loss or destruction of any
outstanding certificate for shares of stock of the corporation, the corporation
may issue a duplicate certificate (plainly marked "duplicate"), in its place,
provided the registered owner thereof or his legal representatives furnish due
proof of loss thereof by affidavit, and (if required by the board of directors,
in its discretion) furnish a bond in such amount and form and with such surety
as may be prescribed by the board. In addition, the board of directors may make
any other requirements which it deems advisable.
39. CLOSING OF TRANSFER BOOKS. The board of directors shall have power
to close the stock transfer books of the corporation for a period not exceeding
fifty days preceding the date of any meeting of the shareholders, or the date
for payment of any dividend, or the date for the allotment of rights, or any
effective date or change or conversion or exchange of capital stock; provided,
however, that in lieu of closing the stock transfer books as aforesaid, the
board of directors may fix in advance a date, not exceeding fifty days preceding
the effective date of any of the above enumerated transactions, as a record
date; and in either case such shareholders and only such shareholders as shall
be shareholders of record on the date of closing the transfer books, or on the
record date so fixed, shall be entitled to receive notice of any such
transaction or to participate in any such transactions notwithstanding any
transfer of any share on the books of the corporation after the date of closing
the transfer books or such record date so fixed.
GENERAL
40. DIVIDENDS. Dividends upon the shares of stock of the corporation,
subject to any applicable provisions of the Articles of Incorporation and of any
applicable laws or statutes may be declared by the board of directors at any
regular or special meeting. Dividends may be paid in cash, in property or in
shares of its stock and to the extent and in the manner provided by law out of
any available earned surplus or earnings of the corporation. Liquidating
dividends or dividends representing a distribution of paid-in surplus or a
return of capital shall be made only when and in the manner permitted by law.
<PAGE> 15
41. CREATION OF RESERVES. Before the payment of any dividends, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the board of directors from time to time, in their absolute
discretion, think proper as a reserve fund or funds, to meet contingencies, or
for equalizing dividends, or for repairing, or maintaining any property of the
corporation, or for such other purposes as the board of directors shall think
conducive to the interests of the corporation, and the board of directors may
abolish any such reserve in the manner in which it was created.
42. FIXING OF CAPITAL, TRANSFERS OF SURPLUS. Except as may be
specifically otherwise provided in the Articles of Incorporation, the board of
directors is expressly empowered to exercise all authority conferred upon it or
the corporation by any law or statute, and in conformity therewith, relative to:
(i) The determination of what part of the consideration
received for shares of the corporation shall be capital;
(ii) Increasing or reducing capital;
(iii)Transferring surplus to capital or capital to surplus;
(iv) Allocating capital to shares of a particular class of stock;
(v) The consideration to be received by the corporation for its
shares; and
(vi) All similar or related matters;
provided that any concurrent action or consent by or of the corporation and its
shareholders required to be taken or given pursuant to law, shall be duly taken
or given in connection therewith.
43. CHECKS, NOTES AND MORTGAGES. All checks, drafts, or other
instruments for the payment, disbursement, or transfer of monies or funds of the
corporation may be signed in its behalf by the treasurer of the corporation,
unless otherwise provided by the board of directors. All notes of the
corporation and any mortgages or other forms of security given to secure the
payment of the same may be signed by the president who may cause to be affixed
the corporate seal attested by the secretary or assistant secretary. The board
of directors by resolution adopted by a majority of the whole board from time to
time may authorize any officer or officers or other responsible person or
persons to execute any of the foregoing instruments for and in behalf of the
corporation.
44. FISCAL YEAR. The board of directors may fix and from time to time
change the fiscal year of the corporation. In the absence of action by the board
of directors, the fiscal year shall end each year on the same date which the
officers of the corporation elect for the close of its first fiscal period.
45. TRANSACTIONS WITH RELATED PERSONS. The affirmative vote of not
less than 80% of the outstanding shares of the corporation entitled to vote in
an election of directors shall be required for the approval or authorization of
any business transaction with a related person as set forth in the Articles of
Incorporation in the manner provided therein.
<PAGE> 16
46. DIRECTOR'S DUTIES; CONSIDERATION OF TENDER OFFERS. The board of
directors shall have broad discretion and authority in considering and
evaluating tender offers for the stock of this corporation. Directors shall not
be liable for breach of their fiduciary duty to the shareholders merely because
the board votes to accept an offer that is not the highest price per share,
provided, that the directors act in good faith in considering collateral
nonprice factors and the impact on constituencies other than the shareholders
(i.e., effect on employees, corporate existence, corporate creditors, the
community, etc.) and do not act in willful disregard of their duties to the
shareholders or with a purpose, direct or indirect, to perpetuate themselves in
office as directors of the corporation.
47. AMENDMENT OF BYLAWS. (a) BY DIRECTORS. The board of directors may
make, alter, amend, change, add to or repeal these bylaws, or any provision
thereof, at any time.
(b) BY SHAREHOLDERS. These bylaws may be amended, modified, altered,
or repealed by the shareholders, in whole or in part, only at the annual meeting
of shareholders or at the special meeting of shareholders called for such
purpose, only upon the affirmative vote of the holders of not less than 80% of
the outstanding shares of stock of this corporation entitled to vote generally
in the election of directors, provided that an affirmative vote of a majority of
the votes entitled to be cast shall be sufficient to approve any such amendment,
modification, alteration or repeal that has been adopted by a vote of 80% of the
members of the board of directors.
ANNEX I
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this day of ____________, 19__, between H & R
Block, Inc., a Missouri corporation (the "Company"), and _______________ (the
"Director").
WITNESSETH THAT:
WHEREAS, the Director is a member of the Board of Directors of the
Company and in such capacity is performing a valuable service for the Company;
and
WHEREAS, under the authority of Section 351.355 of the Missouri
Revised Statutes of 1978, as amended to date (the "State Statute"), bylaws have
been adopted that provide for the indemnification of the officers, directors,
agents and employees of the Company to a greater extent than provided for by
Subsections 1 through 3 of such State Statute; and
WHEREAS, the bylaws of the Company and the State Statute specifically
provide that they are not exclusive, and thereby contemplate that contracts may
be entered into between
<PAGE> 17
the Company and the members of its Board of Directors with respect to
indemnification of such directors; and
WHEREAS, in accordance with the authorization provided by Subsection 7
of the State Statute, the Company has purchased and presently maintains a policy
or policies of Directors or Officers Liability Insurance ("D & O Insurance"),
covering certain liabilities that may be incurred by its directors and officers
in the performance of their services for the Company; and
WHEREAS, recent developments with respect to the terms and
availability of D & O Insurance and with respect to the application, amendment
and enforcement of statutory and bylaw indemnification provisions generally have
raised questions concerning the adequacy and reliability of the protection
afforded to directors thereby; and
WHEREAS, in order to resolve such questions and thereby induce the
Director to serve and continue to serve as a member of the Board of Directors of
the Company, the Company has determined and agreed to enter into this Agreement
with the Director;
NOW, THEREFORE, in consideration of the Director's service and
continued service as a director of the Company after the date hereof, the
parties hereto agree as follows:
1. INDEMNITY OF THE DIRECTOR. Subject only to the exclusions set forth
in Section 3 hereof, the Company hereby agrees as follows:
(a) To hold harmless and indemnify the Director against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Director in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the Company or any action accruing prior to the execution of the
Agreement) to which the Director is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that the Director is, was
or at any time becomes a director, officer, employee or agent of the Company, or
is or was serving or at any time serves at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise; and
(b) Otherwise to hold harmless and indemnify the Director to the
fullest extent as may be provided to the Director by the Company under the
nonexclusivity provisions of Section 23 of the Bylaws and Subsection 6 of the
State Statute.
(c) To pay the Director, or such person or entity as the Director may
designate, on a continuing and current basis (and in any event not later than
ten business days following receipt by the Company of the Director's request for
reimbursement) all expenses (including attorneys' fees), costs, fines, etc.,
incurred by or levied upon the Director in connection with any action, suit or
proceeding that may be indemnifiable under the provisions of this Agreement.
2. MAINTENANCE OF INSURANCE AND SELF INSURANCE. (a) The Company
represents that it presently has in force and effect policies of D & O Insurance
with insurance companies and in amounts as follows (the "Insurance Policies"):
<PAGE> 18
INSURER AMOUNT COMPANY CONTRIBUTION
National Union $10,000,000 $500,000
Unless notification is given to the Director pursuant to the provisions of
Section 2(b) hereof, the Company hereby agrees that, so long as the Director
continues to serve as a director of the Company (or shall continue at the
request of the Company to serve as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise) and
thereafter so long as the Director is subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative by reason of the fact that the Director was a director
of the Company (or served in any of said other capacities), the Company will
purchase and maintain in effect for the benefit of the Director one or more
valid, binding and enforceable policy or policies of D & O Insurance providing,
in all respects, coverage at least comparable to that presently provided
pursuant to the Insurance Policies. For purposes of this Agreement, any policy
or policies of D & O Insurance purchased to maintain such coverage shall be
deemed to be the Insurance Policies.
(b) The Company shall not be required to maintain said Insurance
Policies in effect, provided, however, that the Company notifies the Director in
writing within five business days after the making of the decision to not renew
or replace the Insurance Policies, or any portion of the coverage previously
provided by the Insurance Policies.
(c) The maintenance of such insurance shall not diminish, relieve or
replace the Company's liability for indemnification under the provisions of the
State Statute, the Company's bylaws (the "Bylaws") or this Agreement. The
Director's claim for reimbursement in advance of final disposition of an action,
suit or proceeding of expenses which may be indemnifiable under the provisions
of the State Statute, Bylaws or this Agreement and payable in advance of final
disposition of an action pursuant to Subsection 6 of the State Statute, Section
23 of the Bylaws, or Section 1(c) of this Agreement shall not be denied on the
basis that such amount may or will be covered by the Insurance Policies, if such
payments from the insurance company will not be made to the Director within ten
business days of such Director's claim for reimbursement.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. The Company shall be entitled
to reimbursement from the Director for all monies paid to him or her as
indemnification pursuant to this Agreement under the following circumstances:
(a) to the extent of any costs or expenses the Director is actually
reimbursed pursuant to any Insurance Policies purchased and maintained by the
Company pursuant to Section 2 hereof;
(b) if it is determined by a final judgment or other final
adjudication by a court of competent jurisdiction considering the question of
indemnification of the Director that such payment of indemnification is or would
be in violation of applicable law;
<PAGE> 19
(c) on account of any suit in which judgment is rendered against the
Director for an accounting of profits made from the purchase and sale or sale
and purchase by the Director of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto;
(d) if the Director's conduct is finally adjudged by a court of
competent jurisdiction to have been knowingly fraudulent, deliberately dishonest
or to constitute willful misconduct; or
(e) if it is finally determined by a court of competent jurisdiction
considering the question that the Director's decision to employ independent
legal counsel, pursuant to Section 5(b)(ii) hereof, was not based on a
"reasonable" conclusion that there was a conflict of interest between the
Company and the Director.
4. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period the Director is a
director, officer, employee or agent of the Company (or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as the Director is subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that the Director was a
director of the Company or serving in any other capacity referred to herein.
5. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by the
Director of notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the Company
under this Agreement, notify the Company of the commencement thereof; the
failure to promptly notify the Company will not relieve the Company from any
liability that it may have to the Director hereunder, except to the extent the
Company is prejudiced in its defense of such claim as a result of such failure.
Unless otherwise requested by the Board, written notification shall not be
necessary if the Director informs a majority of the Board of the commencement of
any such action, or, independent of such notification by the Director, a
majority of the Board has reason to believe such action has been initiated or
threatened. With respect to any such action, suit or proceeding as to which the
Director notifies (or is deemed to have notified) the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, the Company, jointly with any other indemnifying party similarly notified,
will be entitled to assume the defense thereof with counsel reasonably
satisfactory to the Director. Subject to the provision below, after notice from
the Company to the Director of its election so to assume the defense thereof,
the Company will not be liable to the Director under this Agreement for any
legal or other expenses subsequently incurred by the Director in connection with
the defense thereof other than reasonable costs of investigation or as otherwise
provided below. The Director shall have the right to employ his or her own
counsel in such action, suit or proceeding, but the fees and expenses of such
counsel incurred after notice from the Company of its assumption of the defense
thereof shall be at the expense of the Director unless (i) the employment of
counsel by the Director has been authorized by the Company, (ii) the Director
reasonably concludes that there may be a conflict of interest between the
Company
<PAGE> 20
and the Director in the conduct of the defense of such action and that such
conflict may lead to exposure for the director not otherwise indemnifiable under
the provisions of this Agreement and notifies the Company of such conclusion and
decision to employ separate counsel, or (iii) the Company fails to employ
counsel to assume the defense of such action, in each case the fees and expenses
of counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which the Director reasonably makes the
conclusion provided for in (ii) above; and
(c) The Company shall not be liable to indemnify the Director under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The company shall not settle any action or
claim in any manner which would impose any penalty or limitation on the Director
without the Director's written consent. Neither the Company nor the Director
will unreasonably withhold their consent to any proposed settlement.
6. REPAYMENT OF EXPENSES. The Director agrees that he or she will
reimburse the Company for all reasonable expenses paid by the Company in
defending any civil or criminal action, suit or proceeding against him or her in
the event and only to the extent that it is ultimately determined by a court of
competent jurisdiction considering the question that the Director is not
entitled to be indemnified by the Company for such expenses under the provisions
of the State Statute, the Bylaws, this Agreement or otherwise.
7. ENFORCEMENT. (a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce the Director to continue as a director of the
Company, and acknowledges that the Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event the Director is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Company shall reimburse the Director for all of the
Director's reasonable fees and expenses (including attorney's fees) in bringing
and pursuing such action.
8. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity of unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
9. MISCELLANEOUS. (a) This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Missouri.
(b) This Agreement shall be binding upon the Director and upon the
Company, its successors and assigns, and shall inure to the benefit of the
Director, his or her heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
H & R BLOCK, INC.
By ______________________________
By _____________________________
__________________, the Director
<PAGE> 1
EXHIBIT 10.1
H&R BLOCK, INC.
1989 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
(AS AMENDED)
1. PURPOSES. The purposes of this 1989 Stock Option Plan for Outside
Directors are to attract and retain experienced and qualified directors who are
not employees of the Company or any Subsidiary of the Company, and to secure for
the Company and its shareholders the benefits of stock ownership in the Company
by those directors.
2. DEFINITIONS.
(a) "Board of Directors" shall mean the board of directors of the
Company or any Subsidiary of the Company, as the case may be.
(b) "Common Stock" shall mean the common stock, without par value, of
the Company.
(c) "Company" shall mean H&R Block, Inc., a Missouri corporation.
(d) "Director" shall mean a member of the Board of Directors of the
Company or a member of the Board of Directors of any Subsidiary of the Company,
as the case may be.
(e) "Outside Director" shall mean a member of the Board of Directors of
the Company or any Subsidiary of the Company who is not an employee of the
Company on the date of grant of the Stock Option. As used herein, "employee of
the Company" means any full-time employee of the Company, its subsidiaries and
their respective divisions, departments and subsidiaries and the respective
divisions, departments and subsidiaries of such subsidiaries who is employed at
least thirty-five (35) hours a week; provided, however, it is expressly
understood that an employee of the Company does not include independent
contractors or other persons not otherwise employed by the Company or any
Subsidiary of the Company but who provide legal, accounting, investment banking
or other professional services to the Company or any Subsidiary of the Company.
(f) "Plan" shall mean this 1989 Stock Option Plan for Outside
Directors, as the same may be amended from time to time.
(g) "Recipient" shall mean an Outside Director of the Company or any
Subsidiary of the Company who has been granted a Stock Option under the Plan or
any person who succeeds to the rights of such Outside Director under this Plan
by reason of the death of such Outside Director.
(h) "Stock Option" shall mean the right to purchase, upon exercise of a
Stock Option granted under this Plan, shares of the Common Stock. Such Stock
Options are non-statutory stock options and are not intended to be "incentive
stock options" as defined in the Internal Revenue Code of 1986, as amended.
1
<PAGE> 2
(i) "Subsidiary of the Company" shall mean a subsidiary of the Company,
its divisions, departments, and subsidiaries and the respective divisions,
departments and subsidiaries of such subsidiaries.
3. ADMINISTRATION OF THE PLAN. The Plan may be administered by the
Company's Board of Directors or an Option Committee (the "Committee"), as the
Board of Directors of the Company may in its sole discretion decide. All Outside
Directors shall be ineligible to vote upon any matter concerning the Stock
Options including adoption of this Plan. The Committee, if it is established by
the Company's Board of Directors to administer the Plan, shall consist of
directors of the Company who are not Outside Directors, to be appointed by and
to serve at the pleasure of the Board of Directors of the Company. A majority of
the Committee members shall constitute a quorum and the acts of a majority of
the members present at any meeting at which a quorum is present, or acts
approved in writing by all members of the Committee, shall be valid acts of the
Committee. All references herein to the Committee shall be deemed to mean any
successor to the Committee, however designated, or the Board of Directors of the
Company if the Board has not approved a Committee.
The Committee shall have full power and authority to construe,
interpret and administer the Plan and, subject to the powers herein specifically
reserved to the Company's Board of Directors and subject to the other provisions
of this Plan, to make determinations which shall be final, conclusive and
binding upon all persons, including, without limitation, the Company, the
shareholders of the Company, the Board of Directors, the Recipients and any
persons having any interest in any Stock Options which may be granted under this
Plan. The Committee shall impose such additional conditions upon Stock Options
granted under this Plan and the exercise thereof as may from time to time be
deemed necessary or advisable, in the opinion of counsel to the Company, to
comply with applicable laws and regulations. The Committee from time to time may
adopt rules and regulations for carrying out the Plan and written policies for
implementation of the Plan. Such policies may include, but need not be limited
to, the type, size and terms of Stock Options to be granted to Outside Directors
of the Subsidiaries of the Company and the conditions for payment of Stock
Options by Recipients.
The initial Committee shall consist of Henry W. Bloch, Chairman and
Chief Executive Officer of the Company, Jerome B. Grossman, Vice Chairman of the
Company, and Thomas M. Bloch, President of the Company.
4. ABSOLUTE DISCRETION. The Committee may, in its sole and absolute
discretion, from time to time during the continuance of the Plan, (i) determine
which Outside Directors of any Subsidiary of the Company shall be granted Stock
Options under the Plan, (ii) grant Stock Options to any Outside Directors of any
Subsidiary of the Company so selected, (iii) determine the type, date of grant,
size and terms of Stock Options to be granted to Outside Directors of any
Subsidiary of the Company (subject to Sections 7, 9 and 10 hereof, as the same
may be hereafter amended), (iv) determine the terms other than the date of
grant, size and stock option price of Stock Options granted pursuant to Section
6 hereof to Outside Directors of the Company, (v) place conditions or
restrictions on the receipt of Stock Options by Outside Directors of any
Subsidiary of the Company or on the payment or exercise of any Stock Options,
and (vi) do all other things necessary and proper to carry out the intentions of
this Plan.
2
<PAGE> 3
5. ELIGIBILITY. Stock Options may be granted to any Outside Director;
however, subject to Section 6 hereof, no Outside Director or other person shall
have any claim or right to be granted a Stock Option under the Plan. No member
of the Committee (other than an ex officio member) shall be eligible for grants
of Stock Options under the Plan.
6. PRESCRIBED STOCK OPTIONS FOR OUTSIDE DIRECTORS OF THE COMPANY.
During the continuance of the Plan, a Stock Option to purchase an aggregate of
3,000 shares of Common Stock shall be granted on each date of grant specified in
this Section 6 to each Outside Director of the Company serving as such on such
date of grant. Stock Options specified in this Section 6 shall be granted on
September 11, 1991, and on June 30 of each year thereafter in which the Plan is
in effect. The stock option price of each share of Common Stock subject to a
Stock Option granted pursuant to this Section 6 shall be determined in
accordance with Section 9 hereof. Outside Directors of the Company shall not be
granted Stock Options pursuant to the Plan other than as specified in this
Section 6, provided that no Stock Options granted pursuant to this Plan prior to
September 11, 1991, shall be invalidated or otherwise affected by the provisions
of this Section 6. This Section 6 shall not apply to Outside Directors of
Subsidiaries of the Company who are not also Outside Directors of the Company on
the date of grant.
7. STOCK SUBJECT TO THE PLAN. The total number of shares of Common
Stock issuable under this Plan may not at any time exceed 150,000 shares,
subject to adjustment as provided in Sections 14 and 15 hereof. Shares of Common
Stock not actually issued pursuant to Stock Options shall be available for
future Stock Options. Shares of Common Stock to be delivered or purchased under
the Plan may be either authorized but unissued Common Stock or treasury shares.
8. VESTING REQUIREMENTS. The Committee may determine that all or a
portion of a Stock Option shall be vested at such times and upon such terms as
may be selected by it. All Stock Options shall expire as to all of their
unexercised shares ten years after the date of their grant.
9. STOCK OPTION PRICE. The purchase price per share of Common Stock
under each Stock Option granted hereunder shall be equal to the last reported
sale price, regular way, for the Common Stock on the New York Stock Exchange on
the date of grant (or, if said date of grant falls on a non-business day, then
on the next preceding business date on which the stock is quoted) of such Stock
Option.
10. PAYMENT OF STOCK OPTION PRICE. Payment for exercise of any Stock
Option granted hereunder shall be made (a) in cash, or (b) by delivery of Common
Stock having a market value equal to the aggregate option price, or (c) by a
combination of payment of cash and delivery of Common Stock in amounts such that
the amount of cash plus the market value of the Common Stock equals the
aggregate option price.
11. CONTINUATION AS DIRECTOR. The Committee shall require that a
Recipient be an Outside Director at the time a Stock Option is granted and may
require that a Recipient be an Outside Director at the time a Stock Option is
exercised. The Committee may provide for the termination of an outstanding Stock
Option if a Recipient ceases to be an Outside Director and may establish such
other provisions with respect to the termination or disposition of a Stock
Option on the death or retirement of a Recipient as it, in its sole discretion,
deems advisable. The Committee shall have the sole power to determine the date
of any circumstances which shall constitute cessation as a Director and to
determine whether such cessation is the result of retirement, death or any other
reason.
3
<PAGE> 4
12. REGISTRATION OF STOCK. No Stock Option may be exercised at any time
when its exercise or the delivery of shares of Common Stock or other securities
thereunder would, in the opinion of counsel for the Company, be in violation of
any state or federal law, rule or ordinance, including any state or federal
securities laws or any regulation or ruling of the Securities and Exchange
Commission. If at any time counsel for the Company shall determine that
qualification or registration under any state or federal law of the shares of
Common Stock or other securities thereby covered, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a condition of or
in connection with the exercise of such Stock Option or the purchase of shares
thereunder, the Stock Option may not be paid or exercised in whole or in part
unless and until such qualification, registration, consent or approval shall
have been effected or obtained free of any conditions such counsel deems
unacceptable.
13. NON-ASSIGNABILITY. No Stock Option granted pursuant to the Plan
shall be transferable or assignable by the Recipient other than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code of 1986, as amended, or Title I of
the Employee Retirement Security Act, or the rules thereunder. During the
lifetime of the Recipient a Stock Option granted pursuant to the Plan shall be
exercisable only by the Recipient.
14. DILUTION OR OTHER ADJUSTMENTS. In the event of any change in the
capital structure of the Company, including but not limited to a change
resulting from a stock dividend or split-up, or combination or reclassification
of shares, the Board of Directors of the Company shall make such equitable
adjustments with respect to the Stock Options or any provisions of this Plan as
it deems necessary or appropriate, including, if necessary, any adjustment in
the maximum number of shares of Common Stock subject to an outstanding Stock
Option.
15. MERGER, CONSOLIDATION, REORGANIZATION, LIQUIDATION, ETC. If the
Company shall become a party to any corporate merger, consolidation, major
acquisition of property for stock, reorganization or liquidation, the Board of
Directors of the Company shall make such arrangements it deems advisable with
respect to outstanding Stock Options, which shall be binding upon the Recipients
of outstanding Stock Options, including, but not limited to, the substitution of
new Stock Options for any Stock Options then outstanding, the assumption of such
Stock Options and the termination of or payment for such Stock Options.
16. COSTS AND EXPENSES. The cost and expenses of administering the Plan
shall be borne by the Company and not charged to any Stock Option nor to any
Recipient.
17. STOCK OPTION AGREEMENTS. The Committee shall have the power to
specify the form of Stock Option Agreements to be granted from time to time
pursuant to and in accordance with the provisions of the Plan and such
agreements shall be final, conclusive and binding upon the Company, the
shareholders of the Company and the Recipients. No Recipient shall have or
acquire any rights under the Plan except such as are evidenced by a duly
executed agreement in the form thus specified.
18. NO SHAREHOLDER PRIVILEGES. Neither the Recipient nor any person
claiming under or through him or her shall be or have any of the rights or
privileges of a shareholder of the Company in respect to any of the Common Stock
issuable upon the exercise of any Stock Option, unless and until certificates
evidencing such shares of Common Stock shall have been duly issued and
delivered.
4
<PAGE> 5
19. GUIDELINES. The Board of Directors of the Company shall have the
power to provide guidelines for administration of the Plan by the Committee and
to make any changes in such guidelines as from time to time the Board deems
necessary.
20. AMENDMENT AND DISCONTINUANCE. The Board of Directors of the Company
shall have the right at any time during the continuance of the Plan to amend,
modify, supplement, suspend or terminate the Plan, provided that (a) no
amendment, supplement, modification, suspension or termination of the Plan shall
in any manner affect any Stock Option of any kind theretofore granted under the
Plan without the consent of the Recipient of the Stock Option, unless such
amendment, supplement, modification, suspension or termination is by reason of
any change in capital structure referred to in Section 14 hereof or unless the
same is by reason of the matters referred to in Section 15 hereof; (b) Sections
6 and 9 herein shall not be amended or modified more than once in any six-month
period, other than to comport with changes in the Internal Revenue Code of 1986,
as amended, or the rules thereunder and (c) if the Plan is duly approved by the
shareholders of the Company, no amendment, modification or supplement to the
Plan shall thereafter, in the absence of the approval of the holders of a
majority of the shares of Common Stock of the Company present in person or by
proxy at a duly constituted meeting of shareholders of the Company, (i) increase
the aggregate number of shares which may be issued under the Plan, unless such
increase is by reason of any change in capital structure referred to in Section
14 hereof, (ii) change the termination date of the Plan provided in Section 21
hereof, or (iii) delete or amend the provisions of Section 9 hereof relating to
the establishment of the stock option price.
21. TERMINATION. Stock Options may be granted in accordance with the
terms of the Plan until December 5, 2001, on which date this Plan will terminate
except as to Stock Options then outstanding hereunder, which Stock Options shall
remain in effect until they have expired according to their terms.
22. APPROVAL. This Plan shall take effect upon due approval by the
Board of Directors of the Company.
5
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 11
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; by Amendment No. 7
effective December 11, 1996; by Amendment No. 8 effective January 1, 1998; by
Amendment No. 9 effective as of January 1, 1997; and by Amendment No. 10
effective in part March 1, 1998 and in part April 1, 1998. 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. 11 is
effective as of May 15, 1998.
AMENDMENT
1. The following new Section 2.1.1b is added after Section 2.1.1a of the Plan:
2.1.1b "Accounting Firm" means an accounting firm in which the Company
has no direct or indirect ownership interest but with which a subsidiary of
HRB Business Services, Inc. has a contractual relationship in respect of
one or more employees who are employees of both such accounting firm and
such subsidiary.
2. Section 2.1.4 of the Plan, as previously amended, is further amended by
adding the following sentence at the end thereof:
In the case of a Participant who is an employee of both a subsidiary of HRB
Business Services, Inc. and an Accounting Firm, the calculation of the
amount of the Annual Deferral Amount that the Participant is permitted to
elect shall be made by taking into account the amount of salary and bonus
paid to such Participant by the Accounting Firm, but the actual deferral
under the Plan shall only be made out of the Base Salary and/or Bonus or
Bonuses paid by all Affiliates.
3. Section 2.1.22 of the Plan, as previously amended, is further amended by
replacing such section with the following new Section 2.1.22 :
2.1.22 "Participating Affiliate" or "Participating Affiliates" means
the Company and the following indirect subsidiaries of the Company: HRB
Management, Inc., H&R Block Tax Services, Inc., Block Financial
Corporation, Option One Mortgage Corporation, HRB Business Services, Inc.
and the U.S. subsidiaries of such indirect subsidiaries; and such other
entities as may be designated as such by the Company from time to time.
<PAGE> 2
4. Section 2.1.23 of the Plan, as previously amended, is further amended by
adding the following sentence after the third sentence thereof:
In the case of a Participant who is an employee of both a subsidiary of HRB
Business Services, Inc. and an Accounting Firm, the calculation of the
amount of the Permissible Deferral shall be made by taking into account the
amount of salary and bonus paid to such Participant by the Accounting Firm,
but the actual deferral under the Plan shall only be made out of Base
Salary and/or Bonus or Bonuses paid by all Affiliates.
5. Except as modified in this Amendment No. 11, 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 _____________________________
Its ____________________________
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 7
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; by Amendment No. 3 effective December
11, 1996; by Amendment No. 4 effective January 1, 1998; by Amendment No. 5
effective May 1, 1997; and by Amendment No. 6 effective in part March 1, 1998
and in part April 1, 1998. 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. 7 is effective as of May 15,
1998.
AMENDMENT
1. The following new Section 2.1.1b is added after Section 2.1.1a of the Plan:
2.1.1b "Accounting Firm" means an accounting firm in which the Company
has no direct or indirect ownership interest but with which a subsidiary of
HRB Business Services, Inc. has a contractual relationship in respect of
one or more employees who are employees of both such accounting firm and
such subsidiary.
2. Section 2.1.4 of the Plan, as previously amended, is further amended by
adding the following sentence at the end thereof:
In the case of a Participant who is an employee of both a subsidiary of HRB
Business Services, Inc. and an Accounting Firm, the calculation of the
amount of the Annual Deferral Amount that the Participant is permitted to
elect shall be made by taking into account the amount of salary and bonus
paid to such Participant by the Accounting Firm, but the actual deferral
under the Plan shall only be made out of the Base Salary and/or Bonus or
Bonuses paid by all Affiliates.
3. Section 2.1.24 of the Plan, as previously amended, is further amended by
replacing such section with the following new Section 2.1.24 :
2.1.24 "Participating Affiliate" or "Participating Affiliates" means
the Company and the following indirect subsidiaries of the Company: HRB
Management, Inc., H&R Block Tax Services, Inc., Block Financial
Corporation, Option One Mortgage Corporation, HRB Business Services, Inc.
and the U.S. subsidiaries of such indirect subsidiaries; and such other
entities as may be designated as such by the Company from time to time.
<PAGE> 2
4. Section 2.1.25 of the Plan is amended by adding the following sentence
after the third sentence thereof:
In the case of a Participant who is an employee of both a subsidiary of HRB
Business Services, Inc. and an Accounting Firm, the calculation of the
amount of the Permissible Deferral shall be made by taking into account the
amount of salary and bonus paid to such Participant by the Accounting Firm,
but the actual deferral under the Plan shall only be made out of Base
Salary and/or Bonus or Bonuses paid by all Affiliates.
5. Except as modified in this Amendment No. 7, 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 _____________________________
Its ____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 307,941
<SECURITIES> 148,753
<RECEIVABLES> 1,404,522
<ALLOWANCES> 47,493
<INVENTORY> 0
<CURRENT-ASSETS> 1,967,036
<PP&E> 75,084<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,569,110
<CURRENT-LIABILITIES> 1,464,122
<BONDS> 0
0
0
<COMMON> 1,089
<OTHER-SE> 815,600
<TOTAL-LIABILITY-AND-EQUITY> 2,569,110
<SALES> 0
<TOTAL-REVENUES> 172,515
<CGS> 0
<TOTAL-COSTS> 292,176
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (95,019)
<INCOME-TAX> (36,107)
<INCOME-CONTINUING> (58,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,912)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
<FN>
<F1>PP&E BALANCE IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
</FN>
</TABLE>
