<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 JANUARY 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 of the registrant's Common Stock, without par value,
outstanding at March 2, 1998 was 104,809,372 shares.
<PAGE> 2
TABLE OF CONTENTS
PART I Page
Financial Information ----
Consolidated Balance Sheets
January 31, 1998 and April 30, 1997 ......................... 1
Consolidated Statements of Operations
Three Months Ended January 31, 1998 and 1997 ................ 2
Nine Months Ended January 31, 1998 and 1997 ................. 3
Consolidated Statements of Cash Flows
Nine Months Ended January 31, 1998 and 1997 ................. 4
Notes to Consolidated Financial Statements .................... 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 11
PART II Other Information.............................................. 21
SIGNATURES ............................................................. 23
<PAGE> 3
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
---------- ----------
1998 1997
---------- ----------
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 107,557 $ 457,079
Marketable securities 1,031,699 61,755
Receivables, less allowance for doubtful accounts of $18,149
and $30,144 779,169 407,441
Prepaid expenses and other current assets 111,154 31,671
Net assets of discontinued operations - 522,144
---------- ----------
TOTAL CURRENT ASSETS 2,029,579 1,480,090
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 13,566 20,273
Excess of cost over fair value of net tangible assets acquired,
net of amortization 266,161 74,794
Other 80,804 66,836
---------- ----------
360,531 161,903
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 76,409 65,065
---------- ----------
$2,466,519 $1,707,058
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 631,840 $ 269,619
Accounts payable, accrued expenses and deposits 132,959 164,872
Accrued salaries, wages and payroll taxes 41,337 105,326
Accrued taxes on earnings 272,200 129,192
---------- ----------
TOTAL CURRENT LIABILITIES 1,078,336 669,009
LONG-TERM DEBT 249,663 -
OTHER NONCURRENT LIABILITIES 41,432 38,952
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Convertible preferred stock, no par, stated value $.01 per share 4 4
Additional paid-in capital 495,350 502,308
Retained earnings 749,646 684,071
---------- ----------
1,246,089 1,187,472
Less cost of 3,880,095 and 4,905,421 shares of common stock
in treasury 149,001 188,375
---------- ----------
1,097,088 999,097
---------- ----------
$2,466,519 $1,707,058
========== ==========
</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
------------------
JANUARY 31,
-----------
1998 1997
---- ----
<S> <C> <C>
REVENUES
Service revenues $ 161,981 $ 127,524
Product sales 35,625 14,841
Royalties 10,562 11,931
Other income 515 841
------------- -------------
208,683 155,137
------------- -------------
OPERATING EXPENSES
Employee compensation and benefits 94,184 74,693
Occupancy and equipment 49,024 41,286
Interest expense 15,681 3,618
Marketing and advertising 16,730 10,820
Supplies, freight and postage 16,081 15,738
Other 46,228 32,057
------------- -------------
237,928 178,212
------------- -------------
Operating loss (29,245) (23,075)
OTHER INCOME
Investment income, net 1,107 657
Other, net (17) -
------------- -------------
1,090 657
------------- -------------
Loss from continuing operations before income tax benefit (28,155) (22,418)
Income tax benefit (10,699) (8,496)
------------- -------------
Net loss from continuing operations (17,456) (13,922)
Net earnings (loss) from discontinued operations (less applicable
income taxes (benefit) of $941 and ($5,957)) 167 (11,404)
Net gain on sale of discontinued operations (less applicable
income taxes of $251,701) 231,867 -
------------- -------------
Net earnings (loss) $ 214,578 $ (25,326)
============= =============
Weighted average number of common shares outstanding 105,050 104,041
============= =============
Basic and diluted net loss per share from continuing operations $ (.17) $ (.13)
============= =============
Basic and diluted net earnings (loss) per share $ 2.04 $ (.24)
============= =============
Dividends per share $ .20 $ .20
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE> 5
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JANUARY 31,
-----------
1998 1997
---- ----
<S> <C> <C>
REVENUES
Service revenues $ 250,243 $ 182,479
Product sales 62,417 16,253
Royalties 14,980 16,486
Other income 3,245 1,641
------------- -------------
330,885 216,859
------------- -------------
OPERATING EXPENSES
Employee compensation and benefits 166,226 122,496
Occupancy and equipment 122,735 102,768
Interest expense 37,223 6,948
Marketing and advertising 28,459 19,802
Supplies, freight and postage 23,815 22,048
Other 95,405 62,449
------------- -------------
473,863 336,511
------------- -------------
Operating loss (142,978) (119,652)
OTHER INCOME
Investment income, net 9,490 6,863
Other, net (5) -
------------- -------------
9,485 6,863
------------- -------------
Loss from continuing operations before income tax benefit (133,493) (112,789)
Income tax benefit (50,727) (42,747)
------------- -------------
Net loss from continuing operations (82,766) (70,042)
Net loss from discontinued operations (less applicable
tax benefit of ($7,277) and ($48,053)) (13,889) (81,638)
Net gain on sale of discontinued operations (less applicable
income taxes of $251,701) 231,867 -
------------- -------------
Net earnings (loss) $ 135,212 $ (151,680)
============= =============
Weighted average number of common shares outstanding 104,568 103,960
============= =============
Basic and diluted net loss per share from continuing operations $ (.79) $ (.67)
============= =============
Basic and diluted net earnings (loss) per share $ 1.29 $ (1.46)
============= =============
Dividends per share $ .60 $ .84
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 6
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED, AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JANUARY 31,
-----------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 135,212 $ (151,680)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 34,637 22,085
Net gain on sale of discontinued operations (231,867) -
Other noncurrent liabilities 2,480 4,080
Changes in:
Receivables 82,717 (363,411)
Prepaid expenses and other current assets (44,304) (52,441)
Net assets of discontinued operations 13,665 80,867
Accounts payable, accrued expenses and deposits (64,385) 40,829
Accrued salaries, wages and payroll taxes (65,796) (55,633)
Accrued taxes on earnings (123,339) (77,603)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (260,980) (552,907)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (133,774) (28,089)
Maturities of marketable securities 202,473 17,488
Purchases of property and equipment (30,633) (33,231)
Excess of cost over fair value of net tangible assets acquired,
net of cash acquired (237,786) (19,294)
Other, net (14,283) (9,163)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (214,003) (72,289)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (8,499,105) (3,147,413)
Proceeds from issuance of notes payable 8,405,163 3,535,782
Proceeds from issuance of long-term debt 249,663 -
Dividends paid (62,676) (87,180)
Proceeds from stock options exercised 32,416 2,821
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 125,461 304,010
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (349,522) (321,186)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 457,079 405,019
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 107,557 $ 83,833
============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 58,746 $ 18,695
Interest paid 35,492 6,989
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<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 January 31, 1998, the Consolidated
Statements of Operations for the three and nine months ended January 31,
1998 and 1997, and the Consolidated Statements of Cash Flows for the nine
months ended January 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 January 31,
1998 and for all periods presented have been made.
Reclassifications have been made to prior period amounts to conform with
current period presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K/A,
Amendment Number 2, for the fiscal year ended April 30, 1997.
Operating revenues are seasonal in nature with peak revenues occurring in
the months of January through April. Thus, the nine month results are not
indicative of results to be expected for the year.
2. On January 31, 1998, the Company completed the sale of its 80.1%
interest in CompuServe Corporation (CompuServe) to a subsidiary of
WorldCom, Inc. (WorldCom). The Company recorded a $231.9 million gain, net
of taxes, on the transaction. The sale was structured as a stock-for-stock
transaction in which the Company received 30.1 million shares of WorldCom
stock in exchange for its 80.1% ownership interest (74.2 million shares) in
CompuServe stock. The Company completed the transaction through its receipt
of $1.03 billion in net proceeds from the monetization of 100% of its
WorldCom stock in a block trade on February 2, 1998. As a part of the
CompuServe transaction, the Company has agreed to indemnify WorldCom and
CompuServe against 80.1% of any losses and expenses incurred by them with
respect to litigation and claims brought against CompuServe, any of its
current or former officers, directors, employees, agents or underwriters
relating to CompuServe's initial public offering in April 1996, as
discussed below. The 30.1 million shares of WorldCom stock valued at $1.03
billion that the Company received in the stock-for-stock transaction was
treated as a noncash investing activity in the Consolidated Statement of
Cash Flows for the nine months ended January 31, 1998.
The consolidated financial statements have been reclassified to reflect the
Company's Computer Services segment as discontinued operations. Revenues
from Computer Services for the nine months ended January 31, 1998 and 1997
were $628.2 million and $634.0 million, respectively, and were $217.1
million and $211.0 million, respectively, for the three months ended
January 31, 1998 and 1997.
-5-
<PAGE> 8
3. On June 17, 1997, the Company completed the purchase of Option One
Mortgage Corporation (Option One). The cash purchase price was $218.1
million, consisting of $28.1 million in adjusted stockholder's equity and a
premium of $190 million. In addition, the Company made cash payments of
$456 million to Option One's former parent to eliminate intercompany loans
made to Option One to finance its mortgage loan operations. The $456
million payment was recorded as an intercompany loan and was repaid to the
Company by the end of June 1997 after Option One sold the loans to a third
party in the ordinary course of business. The acquisition was accounted for
as a purchase and, accordingly, Option One's results are included since the
date of acquisition. The fair value of tangible assets acquired, including
cash, and liabilities assumed was $683.8 million and $463.9 million,
respectively. Liabilities assumed were treated as a noncash investing
activity in the Consolidated Statement of Cash Flows for the nine months
ended January 31, 1998. The excess of cost over fair value of net tangible
assets acquired was $183.1 million and is being amortized on a
straight-line basis over 15 years. The acquisition was financed with the
issuance of $250 million in Senior Notes during the second quarter of
fiscal 1998, discussed below.
The following unaudited pro forma summary combines the consolidated results
of operations of the Company and Option One as if the acquisition had
occurred on May 1, 1997 and 1996, after giving effect to certain
adjustments, including amortization of intangible assets, increased
interest expense on the acquisition debt and the related income tax
effects. The pro forma information is presented for information purposes
only and is not necessarily indicative of what would have occurred if the
acquisition had been made as of those dates. In addition, the pro forma
information is not intended to be a projection of future results.
<TABLE>
<CAPTION>
Nine months ended
-----------------
January 31,
-----------
1998 1997
---- ----
<S> <C> <C>
Revenues $ 338,171 $ 282,879
Net earnings (loss) 131,195 (152,822)
Basic and diluted net earnings (loss) per share 1.25 (1.47)
</TABLE>
4. Receivables consist of the following:
<TABLE>
<CAPTION>
January 31, April 30,
----------- ---------
1998 1997
---- ----
(Audited)
<S> <C> <C>
Credit card loans $ 217,858 $ 247,889
Mortgage loans held for sale 324,664 107,115
Participations in refund anticipation loans 116,860 26,308
Other 137,936 56,273
----------- -----------
797,318 437,585
Allowance for doubtful accounts 18,149 30,144
----------- -----------
$ 779,169 $ 407,441
=========== ===========
</TABLE>
5. During the nine months ended January 31, 1998, the net unrealized holding
gain on available-for-sale securities increased $121 to $1,447.
-6-
<PAGE> 9
6. The Company files its Federal and state income tax returns on a calendar
year basis. The Consolidated Statements of Operations reflect the effective
tax rates expected to be applicable for the respective full fiscal years.
7. During the nine months ended January 31, 1998 and 1997, the Company issued
1,025,326 and 69,511 shares, respectively, pursuant to provisions for
exercise of stock options under its stock option plans.
8. Product sales consist primarily of gains on sales of mortgage loans and
software sales. Gains on loan sales are recognized utilizing the specific
identification method at the time of sale. Software sales are recorded at
the time of shipment.
9. 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 are both subject to pending motions to dismiss filed on
behalf of the defendants, and they have been consolidated. 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 have been consolidated for discovery. As a part of the sale
of its interest in CompuServe, the Company has 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.
10. Summarized financial information for Block Financial Corporation, an
indirect, wholly owned subsidiary of the Company, is presented below.
<TABLE>
<CAPTION>
January 31, April 30,
----------- ---------
1998 1997
---- ----
<S> <C> <C>
Condensed balance sheets: (Audited)
Cash and cash equivalents $ 25,741 $ 3,425
Finance receivables, net 700,735 380,206
Other assets 317,316 34,657
-------------- ---------------
Total assets $ 1,043,792 $ 418,288
============== ===============
Commercial paper $ 627,729 $ 269,619
Other liabilities 44,904 26,867
Long-term debt 249,663 -
Stockholder's equity 121,496 121,802
-------------- ---------------
Total liabilities and stockholder's equity $ 1,043,792 $ 418,288
============== ===============
</TABLE>
-7-
<PAGE> 10
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
January 31, January 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Condensed statements
of operations:
Revenues $ 69,700 $ 32,732 $ 144,060 $ 50,940
Earnings (loss) from operations 3,737 7,795 (467) 4,683
Net earnings (loss) 2,291 4,711 (297) 2,826
</TABLE>
11. On October 21, 1997, the Company, through a subsidiary, issued $250,000 of
6 3/4% Senior Notes due 2004. The Senior Notes are not redeemable prior
to maturity. The net proceeds of this transaction were used to repay
short-term borrowings which initially funded the acquisition of Option
One, as discussed above.
12. As a part of its interest rate risk management strategy, the Company
hedged its interest rate risk related to its fixed rate mortgage portfolio
during the nine months ended January 31, 1998 by selling short treasury
securities and utilizing forward commitments. With its agreement, 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. Deferred losses on the treasury
securities hedging instrument amounted to $73 at January 31, 1998. The
contract value and the market value of this hedging instrument at January
31, 1998 was $20,865 and $20,897, respectively. The contract value and
market value of the forward commitment at January 31, 1998 was $95,000 and
$94,145, respectively.
13. The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128) issued by the Financial Accounting
Standards Board in February 1997, which is effective for periods ending
after December 15, 1997. SFAS 128, which simplifies the standards for
computing and presenting earnings per share, replaces the previously
reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Accordingly, earnings
per share as previously reported have been restated, as necessary, to
conform to the new standard. As presented herein, both basic earnings per
share and diluted earnings per share are computed using the weighted
average number of shares outstanding. Diluted earnings per share excludes
the impact of common stock options and convertible preferred stock options
outstanding of 6,052,434 shares, and the conversion of all shares of
preferred stock to common stock of 1,657,332 shares, as they are
antidilutive. The weighted average shares outstanding for the nine months
ended January 31, 1998 increased to 104,568,000 from 103,960,000 last year,
mainly due to stock option exercises.
-8-
<PAGE> 11
14. In the third quarter of fiscal 1998, the Company elected the early adoption
of Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131
requires that a company report financial and descriptive information about
its reportable operating segments, defined as those components of an
enterprise about which separate financial information is available and is
evaluated regularly by management in deciding how to allocate resources
and in assessing performance. Management analyzes its business according to
differences in types of services and geographic locations and the
reportable operating segments have been determined accordingly. The
reportable operating segments are discussed below.
15. The principal business activity of the Company is providing financial
services to the general public and business community. Management has
determined the reportable segments identified below according to
differences in types of services, geographic locations and how operational
decisions are made. Geographical information is presented within the
segment data below. All foreign countries in which the Company operates,
which are individually immaterial, are included in International Tax
Services. Included below are the revenues, operating earnings (loss) and
identifiable assets of each segment that are used by management to evaluate
the segment's results. The Company operates in the following reportable
segments:
Tax Services: This segment is primarily engaged in providing tax return
preparation, filing, and related services to the general public in the
United States. Tax-related service revenue includes fees from company-owned
tax offices and royalties from franchised offices. This segment also
purchases participation interests in refund anticipation loans made by a
third party lending institution which are offered to tax clients, and
provides tax preparation software to the general public. Revenues of this
segment are seasonal in nature.
International Tax Services: This segment is primarily engaged in providing
tax return preparation, filing, and related services to the general public
in Canada, Australia and the United Kingdom. In addition, International Tax
Services has franchise offices in eight countries. Tax-related service
revenue includes fees from company-owned tax offices and royalties from
franchised offices. Revenues of this segment are seasonal in nature.
Mortgage Operations: This segment is engaged in the origination, purchase,
servicing, securitization and sale of nonconforming mortgage loans in the
United States. Mortgage origination services are offered through a network
of mortgage brokers in 46 states and through H&R Block tax offices in 19
states.
Credit Card Operations: This segment operates in the United States and
sponsors credit card loans under a co-branded agreement and, through an
Internet site and an online service provider, allows cardholders access to
account transactions and payment detail through an online lookup feature.
-9-
<PAGE> 12
Identifiable Assets: Identifiable assets are those assets, including the
excess of cost over fair value of net tangible assets acquired, associated
with each reportable segment. The remaining assets are classified as
corporate assets and consist primarily of cash, marketable securities and
corporate equipment.
Information concerning the Company's operations by reportable operating
segments for the nine months ended January 31, 1998 and 1997, and the
three months ended January 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
January 31, January 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
U.S. tax services $ 184,894 $ 163,461 $ 154,637 $ 135,135
International tax services 24,221 24,891 7,371 8,359
Mortgage operations 93,039 6,746 37,522 4,845
Credit card operations 28,956 22,929 10,053 8,200
Unallocated corporate 944 331 251 97
Inter-segment sales (1,169) (1,499) (1,151) (1,499)
--------------- -------------- -------------- --------------
$ 330,885 $ 216,859 $ 208,683 $ 155,137
=============== ============== ============== ==============
OPERATING EARNINGS:
U.S. tax services $ (122,291) $ (101,645) $ (18,703) $ (16,071)
International tax services (13,174) (10,237) (6,925) (5,767)
Mortgage operations 19,756 2,737 7,681 2,480
Credit card operations (11,964) (3,650) (4,223) (1,295)
Unallocated corporate (15,310) (6,857) (7,092) (2,422)
Investment income, net 9,490 6,863 1,107 657
--------------- -------------- -------------- --------------
Earnings from continuing
operations before
income taxes $ (133,493) $ (112,789) $ (28,155) $ (22,418)
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
January 31, April 30,
----------- ---------
1998 1997
---- ----
<S> <C> <C>
IDENTIFIABLE ASSETS:
U.S. tax services $ 401,172 $ 209,047
International tax services 43,825 39,145
Mortgage operations 642,311 125,734
Credit card operations 220,150 253,052
-------------- --------------
Total assets from reportable segments 1,307,458 626,978
Unallocated corporate 1,159,061 557,936
Net assets of discontinued operations - 522,144
-------------- --------------
$ 2,466,519 $ 1,707,058
============== ==============
</TABLE>
-10-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
These comments should be read in conjunction with the Consolidated Balance
Sheets and Consolidated Statements of Cash Flows found on pages 1 and 4,
respectively.
Working capital increased to $951.2 million at January 31, 1998 from $811.1
million at April 30, 1997. The working capital ratio at January 31, 1998 is 1.9
to 1, compared to 2.2 to 1 at April 30, 1997. The increase in working capital
and the decrease in the working capital ratio is primarily due to the following:
(1) working capital was increased by approximately $231.9 million due to the
sale of CompuServe Corporation (CompuServe); and (2) the seasonal nature of the
Company's U.S. Tax Services segment. Tax return preparation occurs almost
entirely in the fourth quarter and has the effect of increasing certain assets
and liabilities during this time.
The Company maintains seasonal lines of credit to support short-term borrowing
facilities in the United States and Canada. During the months of January through
April, the Company's Canadian Tax Services regularly incurs short-term
borrowings to purchase refunds due its clients from Revenue Canada.
The Company, through a subsidiary, incurs short-term borrowings throughout the
year to fund receivables associated with its credit card, nonconforming mortgage
loan and other financial service programs. During January through April,
short-term borrowings will be used to purchase a 40 percent participating
interest in certain Refund Anticipation Loans through a ten-year agreement with
Beneficial National Bank. There is a $1.8 billion back-up credit facility to
support various financial activities through November 1998, subject to renewal.
On October 21, 1997, the Company, through a subsidiary, issued $250 million of 6
3/4% Senior Notes due 2004. The Senior Notes are not redeemable prior to
maturity. The net proceeds of this transaction were used to repay short-term
borrowings which initially funded the acquisition of Option One Mortgage
Corporation (Option One), described below.
The Company's capital expenditures, excluding the acquisition of Option One, and
dividend payments during the first nine months were funded primarily through
internally-generated funds and, to a lesser extent, short-term borrowings.
Using internally-generated funds, the Company paid CompuServe $67.1 million in
September for the tax benefits derived by the Company from CompuServe's
operating losses in the 1996 calendar year. Such payment was made in accordance
with the Tax Sharing Agreement between the Company and CompuServe.
At January 31, 1998, short-term borrowings used to fund credit cards, mortgage
loans, other programs and operations increased to $631.8 million compared to
$269.6 million at April 30, 1997, due mainly to the funding of mortgage
operations. For the nine months ended January 31, 1998 and 1997, interest
expense was $37.3 million and $6.9 million, respectively. The increase
-11-
<PAGE> 14
in interest expense is primarily attributable to the funding of mortgage
operations with short-term borrowings and the long-term debt used to acquire
Option One.
On January 31, 1998, the Company finalized the sale of CompuServe and received
30.1 million shares of WorldCom, Inc. (WorldCom) stock. The transaction was
completed with the receipt of $1.03 billion in net proceeds from the
monetization of the WorldCom stock in a block trade on February 2, 1998. The
proceeds will be used to assist the Company in growing its core tax and
financial services businesses and to fund the Company's stock repurchase plan
discussed below.
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. Such authorization is in addition to the 1993 authorization. At
January 31, 1998, 4.8 million shares had been repurchased. No shares have been
purchased pursuant to these authorizations since December 1995. With the
completion of the CompuServe transaction in January 1998, the Company will begin
to purchase its shares 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, and other investment
opportunities available.
RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
On June 17, 1997, the Company completed the purchase of Option One. Option One
engages in the origination, purchase, servicing, securitization and sale of
nonconforming mortgage loans. Based in Santa Ana, California, Option One has a
network of more than 5,000 mortgage brokers in 46 states. The cash purchase
price was $218.1 million. In addition, the Company made a cash payment of $456
million to Option One's former parent to eliminate intercompany loans made to
Option One to finance its mortgage loan operations. The $456 million payment was
recorded as an intercompany loan and was repaid to the Company by the end of
June 1997 after Option One sold the mortgage loans to a third party in the
ordinary course of business. The acquisition was accounted for as a purchase
and, accordingly, Option One's results are included since the date of
acquisition.
On January 31, 1998, the Company completed the sale of CompuServe to a
subsidiary of WorldCom. The Company recorded a $231.9 million gain, net of
taxes, on the transaction. The sale was structured as a stock-for-stock
transaction in which the Company received 30.1 million shares of WorldCom stock
in exchange for their 80.1% ownership (74.2 million shares) of CompuServe stock.
The Company received $1.03 billion in net proceeds from the monetization of
WorldCom stock in a block trade on February 2, 1998. The financial summary below
has been reclassified to reflect CompuServe as discontinued operations through
the date of the sale. CompuServe was previously reported in the Computer
Services segment.
-12-
<PAGE> 15
FISCAL 1998 COMPARED TO FISCAL 1997
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 JANUARY 31, 1998 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. tax services $ 154,637 $ 135,135 $ (18,703) $ (16,071)
International tax services 7,371 8,359 (6,925) (5,767)
Mortgage operations 37,522 4,845 7,681 2,480
Credit card operations 10,053 8,200 (4,223) (1,295)
Unallocated corporate 251 97 (7,092) (2,422)
Investment income, net - - 1,107 657
Inter-segment sales (1,151) (1,499) - -
--------------- -------------- -------------- -------------
$ 208,683 $ 155,137 (28,155) (22,418)
=============== ==============
Income tax benefit (10,699) (8,496)
-------------- -------------
Net loss from continuing operations (17,456) (13,922)
Net earnings (loss) from discontinued operations 167 (11,404)
Net gain on sale of discontinued operations 231,867 -
-------------- -------------
Net earnings (loss) $ 214,578 $ (25,326)
============== =============
</TABLE>
Consolidated revenues for the three months ended January 31, 1998 increased
34.5% to $208.7 million from $155.1 million reported last year. The increase is
primarily due to the revenues from Option One, acquired on June 17, 1997, which
are included in the Mortgage Operations segment, and increased revenues from the
U.S. Tax Services segment.
The consolidated pretax loss from continuing operations for the third quarter of
fiscal 1998 increased 25.6% to $28.2 million from $22.4 million in the third
quarter of last year. The increase is primarily attributable to the Credit Card
Operations segment, which reported a pretax loss of $4.2 million compared to
$1.3 million in the third quarter of last year, and the U.S. Tax Services
segment which increased its loss by 16.4%.
The net loss from continuing operations was $17.5 million, or $.17 per share,
compared to $13.9 million, or $.13 per share, for the same period last year.
An analysis of operations by segment follows.
-13-
<PAGE> 16
U.S. TAX SERVICES
Revenues increased 14.4% to $154.6 million from $135.1 million last year,
resulting primarily from higher tax-related service fees that are attributable
to an increase in the number of clients served and price increases. During the
first month of the U.S. tax filing season, the total number of clients served
increased 6.9%. Software sales also contributed $4.8 million to the increase due
to an increase in the number of units shipped over the prior year.
The pretax loss increased 16.4% to $18.7 million from $16.1 million in the third
quarter of last year. The increase is due to a decrease in the number of Refund
Anticipation Loan (RAL) participations that is partially attributable to the
delayed start of the electronic filing season. Additionally, inflationary
increases and the number of new tax offices opened this year contributed to the
increased loss. Due to the nature of this segment's business, the results for
the first month of the tax filing season are not indicative of the expected
results for the entire tax season.
INTERNATIONAL TAX SERVICES
Revenues decreased 11.8% to $7.4 million from $8.4 million in the prior year.
The decrease is mainly due to lower levels of discounted tax returns in Canada,
resulting from the provinces' continued elimination of tax credits, and a slower
start of the tax season due to the later distribution of wage slips which enable
tax payers to file their forms.
The pretax loss increased 20.1% to $6.9 million from $5.8 million in the same
period last year. The increase is attributable to investments made to open 27
new offices in the United Kingdom and 33 new offices in Australia. Due to the
nature of this segment's business, the results for the quarter are not
indicative of the expected results for the entire fiscal year.
MORTGAGE OPERATIONS
Revenues increased 674.4% to $37.5 million from $4.8 million in the same period
last year. Pretax earnings increased 209.7% to $7.7 million from $2.5 million in
the prior year. The increase is primarily related to Option One which
contributed revenues of $33.1 million, including gains totaling $19.0 million on
whole-loan sales of $466.0 million during the quarter, and earnings of $8.7
million. These increases were partially off-set by the $3.0 million gain on the
mortgage loan securitization that was recorded in January 1997.
CREDIT CARD OPERATIONS
Revenues increased 22.6% to $10.1 million from $8.2 million in the third quarter
last year due to growth in average revolving credit card balances of 7.4% over
the third quarter of fiscal 1997.
The pretax loss increased 226.1% to $4.2 million from $1.3 million last year.
The increase is attributable to the write-off of $2.2 million in deferred
subscriber acquisition costs and a $1.6 million increase in bad debt expense due
to a deterioration in the quality of the credit card portfolio.
-14-
<PAGE> 17
INVESTMENT INCOME, NET
Net investment income increased 68.5% to $1.1 million from $657 thousand last
year. The increase resulted from more funds available for investment.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the third quarter
increased 192.8% to $7.1 million from $2.4 million in the comparable period last
year. The increase resulted mainly from interest expense of $4.4 million
associated with the acquisition of Option One incurred during the quarter and
higher consultant fees.
-15-
<PAGE> 18
THREE MONTHS ENDED JANUARY 31, 1998 (THIRD QUARTER) COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 1997 (SECOND QUARTER)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- --------------------------------
3rd Qtr 2nd Qtr 3rd Qtr 2nd Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. tax services $ 154,637 $ 18,306 $ (18,703) $ (54,075)
International tax services 7,371 13,470 (6,925) (1,125)
Mortgage operations 37,522 41,309 7,681 10,984
Credit card operations 10,053 9,597 (4,223) (4,684)
Unallocated corporate 251 310 (7,092) (4,122)
Investment income, net - - 1,107 3,193
Inter-segment sales (1,151) - - -
--------------- -------------- -------------- -------------
$ 208,683 $ 82,992 (28,155) (49,829)
=============== ==============
Income tax benefit (10,699) (19,380)
-------------- -------------
Net loss from continuing operations (17,456) (30,449)
Net earnings (loss) from discontinued operations 167 (10,782)
Net gain from sale of discontinued operations 231,867 -
-------------- -------------
Net earnings (loss) $ 214,578 $ (41,231)
============== =============
</TABLE>
Consolidated revenues for the three months ended January 31, 1998 increased
151.4% to $208.7 million from $83.0 million in the second quarter of fiscal
1998. The increase is primarily due to revenues from the U.S. Tax Services
segment related to the beginning of the U.S. tax filing season.
The consolidated pretax loss from continuing operations for the third quarter of
fiscal 1998 decreased 43.5% to $28.2 million from $49.8 million in the second
quarter of this year. The decrease is attributable to the U.S. Tax Services
segment, which incurred a pretax loss of $18.7 million compared to a pretax loss
of $54.1 million in the second quarter of fiscal 1998.
The net loss from continuing operations was $17.5 million, or $.17 per share,
compared to $30.4 million, or $.29 per share, for the second quarter.
An analysis of operations by segment follows.
U.S. TAX SERVICES
Revenues increased 744.7% to $154.6 million from $18.3 million in the second
quarter. The pretax loss decreased 65.4% to $18.7 million from $54.1 million in
the three months ended October 31, 1997. The improved results are due to the
onset of the tax filing season in the U.S.
-16-
<PAGE> 19
INTERNATIONAL TAX SERVICES
Revenues decreased 45.3% to $7.4 million from $13.5 million in the second
quarter. The pretax loss increased 515.6% to $6.9 million from $1.1 million in
the second quarter. The decreased results are due to the timing of the tax
filing seasons in Australia and Canada. The Australian tax season ends in
October while the Canadian tax season begins in late January.
MORTGAGE OPERATIONS
Revenues decreased 9.2% to $37.5 million from $41.3 million in the second
quarter. Pretax earnings decreased 30.1% to $7.7 million from $11.0 million in
the second quarter. These decreases resulted from the timing of loan sales and
prices received for loans sold during the third quarter as compared to the
second quarter.
CREDIT CARD OPERATIONS
Revenues increased 4.8% to $10.1 million from $9.6 million due to larger
revolving credit card balances.
The pretax loss decreased 9.8% to $4.2 million from $4.7 million in the three
months ended October 31, 1997. The decrease is primarily attributable to reduced
losses related to online services due to the downsizing of these operations and
the write-off of capitalized software costs related to software which was being
developed to provide a variety of online services to these and similar customers
during the second quarter. These decreases were partially offset by the
write-off of deferred subscriber acquisition costs related to the credit card
portfolio in the third quarter.
INVESTMENT INCOME, NET
Net investment income decreased 65.3% to $1.1 million from $3.2 million in the
three months ended October 31, 1997. The decrease resulted from less funds
available for investment.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the third quarter
increased 72.1% to $7.1 million from $4.1 million in the second quarter. The
increase resulted mainly from increased interest expense from the acquisition of
Option One and increased charitable contributions and consultant fees.
-17-
<PAGE> 20
NINE MONTHS ENDED JANUARY 31, 1998 (FYTD) COMPARED TO
NINE MONTHS ENDED JANUARY 31, 1997 (FYTD)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. tax services $ 184,894 $ 163,461 $ (122,291) $ (101,645)
International tax services 24,221 24,891 (13,174) (10,237)
Mortgage operations 93,039 6,746 19,756 2,737
Credit card operations 28,956 22,929 (11,964) (3,650)
Unallocated corporate 944 331 (15,310) (6,857)
Investment income, net - - 9,490 6,863
Intersegment sales (1,169) (1,499) - -
--------------- -------------- -------------- -------------
$ 330,885 $ 216,859 (133,493) (112,789)
=============== ==============
Income tax benefit (50,727) (42,747)
-------------- -------------
Net loss from continuing operations (82,766) (70,042)
Net loss from discontinued operations (13,889) (81,638)
Net gain on sale of discontinued operations 231,867 -
-------------- -------------
Net earnings (loss) $ 135,212 $ (151,680)
============== =============
</TABLE>
Consolidated revenues for the nine months ended January 31, 1998 increased 52.6%
to $330.9 million from $216.9 million reported last year. The increase is
primarily due to the revenues of the Company's Mortgage Operations segment this
year of $93.0 million, which include revenues of Option One, acquired on June
17, 1997, and increased revenues from the U.S. Tax Services segment.
The consolidated pretax loss from continuing operations increased 18.4% to
$133.5 million from $112.8 million in the comparable period last year. The
increase is primarily attributable to the U.S. Tax Services segment which
increased its loss to $122.3 million from $101.6 million in the prior year.
The net loss from continuing operations was $82.8 million, or $.79 per share,
compared to $70.0 million, or $.67 per share, for the same period last year.
An analysis of operations by segment follows.
-18-
<PAGE> 21
U.S. TAX SERVICES
Revenues increased 13.1% to $184.9 million from $163.5 million last year,
resulting primarily from higher tax-related service fees that are attributable
to a 6.9% increase in clients served and price increases. Software sales also
contributed $3.8 million to the increase. These increases were somewhat reduced
by lower revenues related to RAL participations.
The pretax loss increased 20.3% to $122.3 million from $101.6 million last year
due to inflationary increases and the number of new tax offices opened this
year. In addition, costs increased due to improvements made to the client
services and technology systems and an increase in the return allowance for
retail software sales. Due to the seasonality of this segment's business, the
first nine months operating results are not indicative of expected results for
the entire fiscal year.
INTERNATIONAL TAX SERVICES
Revenues decreased 2.7% to $24.2 million from $24.9 million reported last year,
primarily attributable to a weakening of Canadian and Australian dollars
relative to the U.S. dollar.
The pretax loss increased 28.7% to $13.2 million from $10.2 million in the
comparable period last year. The increased loss is mainly due to fewer
discounted returns in Canada during January and investments made to open new
offices in the United Kingdom and Australia. Due to the seasonality of this
segment's business, the first nine months operating results are not indicative
of expected results for the entire fiscal year.
MORTGAGE OPERATIONS
Revenues increased $86.3 million to $93.0 million from $6.7 million in the same
period last year. Mortgage Operations reported earnings of $19.8 million, a
621.8% increase from earnings of $2.7 million in the prior year. These increases
are primarily related to Option One which contributed revenues of $79.9 million
this year, including gains totaling $44.1 million on whole-loan sales and
earnings of $21.6 million.
CREDIT CARD OPERATIONS
Revenues increased 26.3% to $29.0 million from $22.9 million in the prior year.
The increase is a result of higher average revolving credit card balances over
the prior nine-month period.
The pretax loss increased 227.8% to $12.0 million from $3.7 million in the
comparable period last year. The greater loss is attributable to increased bad
debt, the write-off of deferred subscriber acquisition costs of $2.2 million and
capitalized software costs of $1.6 million related to software which was being
developed to provide a variety of online services to these and similar
customers.
INVESTMENT INCOME, NET
Net investment income increased 38.3% to $9.5 million from $6.9 million last
year. The increase resulted from more funds available for investment.
-19-
<PAGE> 22
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the first nine
months increased 123.3% to $15.3 million from $6.9 million in the comparable
period last year. The increase resulted mainly from interest expense of $9.3
million related to the acquisition of Option One. These expenses were partially
offset by a decrease in expenses related to the planned spin-off of the
Company's remaining investment in CompuServe.
-20-
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The lawsuits discussed herein were reported in the Form 10-Q for each of the
first and second quarters of fiscal 1998. 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 are both subject to pending
motions to dismiss filed on behalf of the defendants, and they have been
consolidated. 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 have been consolidated for discovery. As a
part of the sale of its interest in CompuServe, the Company has 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
10(a) Amendment No. 10 to the H&R Block Deferred Compensation
Plan for Executives.
10(b) Amendment No. 6 to the H&R Block Supplemental Deferred
Compensation Plan for Executives.
10(c) Amendment No. 5 to the H&R Block Deferred Compensation
Plan for Directors.
(27) Financial Data Schedule.
-21-
<PAGE> 24
b) Reports on Form 8-K
A Form 8-K, Current Report, dated November 10, 1997, was filed by the
registrant reporting as an "Other Event" the decision by the U.S. Department of
Justice to permit the statutory waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 to expire in connection with the merger of
CompuServe Corporation with and into WAC Acquisition Company, L.L.C., a wholly
owned subsidiary of WorldCom, Inc. The press release related to the decision was
included as an exhibit to the Form 8-K. No financial statements were filed as a
part of the Form 8-K.
Except for the aforementioned Form 8-K, the registrant did not file
any reports on Form 8-K during the third quarter of fiscal year 1998.
-22-
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H&R BLOCK, INC.
-----------------------------------
(Registrant)
DATE 3/16/98 BY /s/ Ozzie Wenich
------- -----------------------------------
Ozzie Wenich
Senior Vice President and
Chief Financial Officer
DATE 3/16/98 BY /s/ Patrick D. Petrie
------- -----------------------------------
Patrick D. Petrie
Vice President and Corporate Controller
-23-
<PAGE> 1
EXHIBIT 10(A)
AMENDMENT NO. 10
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; and by Amendment No. 9 effective as of January 1, 1997. The
Company continues to retain the right to amend the Plan, pursuant to action by
the Company's Board of Directors. The Company hereby exercises that right.
This Amendment No. 10 is effective as of March 1, 1998, except for those
provisions in Paragraphs 16, 17(ii) and 18, which are effective as of April 1,
1998.
AMENDMENT
1. The first sentence of the introductory paragraph of the Plan is
replaced with the following new sentence:
"H&R Block, Inc. (the "Company") hereby establishes,
effective August 1, 1987, a nonqualified deferred
compensation plan for the benefit of specified Executives of
the Company and such other entities as may be designated by
the Company from time to time."
2. The following new Section 2.1.1a is added to the Plan immediately
after Section 2.1.1 and before Section 2.1.2:
"2.1.1a 'Account Executive' means a person who has the
title of Account Executive, is employed on a full-time basis
by a Participating Affiliate, and is responsible for
managing, overseeing, directing or handling the accounts of
clients of the Participating Affiliate."
3. Section 2.1.4 of the Plan, as previously amended, is further
amended by replacing said Section 2.1.4 with the following new Section 2.1.4:
"2.1.4 'Annual Deferral Amount' means the amount of
Base Salary, and/or Bonus that a Participant elects to defer
each Plan Year under a Permissible Deferral. For those
individuals first eligible to participate in the Plan prior
to March 1, 1998, the amount of Base Salary included in the
Annual Deferral Amount shall be equal to a percentage of the
Participant's Base Salary that is not less than three
percent (3%) and not greater than thirty-five percent (35%),
and the amount of Bonus or Bonuses included in the Annual
Deferral Amount shall be equal to (i) a flat dollar amount,
expressed in one thousand dollar ($1,000) increments, or
(ii) a percentage of the Bonus or Bonuses paid during the
Plan Year that is not less than five percent (5%) and not
greater than one hundred percent (100%), expressed in
1
<PAGE> 2
five percent (5%) increments. For those individuals eligible to
participate in the Plan on or after March 1, 1998, the
amount of Base Salary included in the Annual Deferral Amount
shall be equal to a percentage within such parameters as are
established by the Committee in its sole and absolute
discretion, and the amount of Bonus or Bonuses included in
the Annual Deferral Amount shall be equal to a percentage or
flat dollar amount within such parameters as are established
by the Committee.
4. Section 2.1.5 of the Plan, as previously amended, is further
amended (i) by replacing the words "a Participant" in the first sentence with
the words "an Executive"; (ii) by inserting the following sentence after the
first sentence thereof:
"The 'Base Salary' of an Account Executive for any Plan Year
means the total earnings and wages, including any and all
commissions, incentives and bonuses, paid by all Affiliates
to such individual during that Plan Year, including any
amount which would be included in the definition of Base
Salary, but for the individual's election to defer some of
his or her earnings pursuant to this Plan or some other
deferred compensation plan established by an Affiliate; but
excluding any other remuneration paid by Affiliates, such as
overtime, stock options, distributions of compensation
previously deferred, restricted stock, allowances for
expenses (including moving, travel expenses, and automobile
allowances), and fringe benefits payable in a form other
than cash.";
and (iii) by inserting the phrase "or earnings" after the phrase "reduce his
salary" in the last sentence of such Section.
5. Section 2.1.8 of the Plan is amended (i) by replacing the words "a
Participant" in the first sentence with the words "an Executive"; and (ii) by
adding the following new sentence to the end of this Section:
"For the purposes of this Plan, the terms Bonus and Bonuses
specifically exclude any and all types of commissions,
incentives or bonuses paid by any Affiliate to an Account
Executive."
6. Section 2.1.17 of the Plan is replaced by the following new Section
2.1.17:
"2.1.17 'Enrollment Period for a Plan Year commencing
on January 1 means the immediate preceding period of October
1 through December 15. For the Plan Year for Group A
Participants and Group B Participants first participating in
the Plan on March 1, 1998, 'Enrollment Period' means the
immediately preceding period of January 1 through February
20, 1998. At its sole and absolute discretion, the
Committee may grant to a person eligible to participate in
the Plan as a Group A Participant or a Group B Participant
an 'Enrollment Period' consisting of the 30-day period
immediately following the date on which such person is
employed by an Affiliate."
7. Section 2.1.21 of the Plan is replaced with the following new
Section 2.1.21:
2
<PAGE> 3
"2.1.21 'Participant' means an Executive or an Account
Executive who is eligible to participate in the Plan and has
elected to participate in the Plan."
8. Section 2.1.22 of the Plan is replaced 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, 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."
9. Section 2.1.23 of the Plan, as previously amended, is further
amended by replacing the second and third sentences of the first paragraph
thereof with the following new sentences:
"For Executives, the aggregate of all deferrals may not
exceed two hundred eighty percent (280%) of the Executive's
total annual salary and wages paid by all Affiliates to such
individual, as determined as of the later of July 1, 1987 or
the date on which the Executive first became eligible to
participate in the Plan. For Account Executives, the
aggregate of all deferrals may not exceed two hundred eighty
percent (280%) of the Account Executive's aggregate earnings
and wages paid by all Affiliates to such individual during
the twelve-month period ending on September 30 of the
calendar year immediately preceding the Plan Year in which
the Account Executive first becomes eligible to participate
in the Plan. For purposes of the two immediately preceding
sentences, such annual salary and wages and such annual
earnings and wages shall include and exclude the same items
of remuneration as are included or excluded from annual
salary and wages and annual earnings and wages in the
definition of Base Salary."
10. Section 2.1.25 of the Plan is replaced with the following new
Section 2.1.25:
"2.1.25 'Plan Year' means the calendar year (i) for
all Permissible Deferrals elected by Group B Participants,
except for those Permissible Deferrals elected to commence
on March 1, 1998, (ii) for Permissible Deferrals of Group A
Participants elected to commence January 1, 1991 or later,
except for those Permissible Deferrals elected to commence
on March 1, 1998, and (iii) for all Permissible Deferrals
and for all purposes when used in Sections 4.3, 4.4, 6.2,
6.3, 6.4, 6.6 and 6.7. For Permissible Deferrals of Group A
Participants elected to commence on or before May 1, 1990,
'Plan Year' means the twelve month period ending each April
30, through April 30, 1997, the period between May 1, 1997
and December 31, 1997, inclusive, and the calendar year
thereafter. For Permissible Deferrals of Group A
Participants and Group B Participants elected to commence on
March 1, 1998, 'Plan Year' means the ten-month period
between March 1, 1998 and December 31, 1998, inclusive, and
the calendar year thereafter. If the Committee grants to a
person eligible to participate in the Plan as a Group A
Participant or a Group B Participant a discretionary
Enrollment Period in accordance with Section 2.1.17 and such
person submits to the
3
<PAGE> 4
Company a Permissible Deferral election, such Participant's
first 'Plan Year' shall be the period (i) beginning on the first
day of his or her first regular pay period commencing not less than
30 days after the Company's receipt of his or her Permissible
Deferral election, and (ii) ending on December 31 of the year in
which such pay period falls."
11. Section 3.1.2 of the Plan is amended by inserting the words "or
Account Executives" after the word "Executives" therein.
12. Section 3.2 of the Plan, as previously amended, is further amended
(i) by inserting the words "or Account Executive" after the word "Executive";
and (ii) by deleting the comma and phrase ", and subject to the provisions of
Sections 3.6 and 3.7" from the last sentence of said Section.
13. Section 3.3 of the Plan, as previously amended, is further amended
(i) by inserting the word "or" in between subsections (b) and (c) thereof; (ii)
by replacing the comma at the end of subsection (c) with a period; (iii) by
deleting the word "or" in between subsections (c) and (d) thereof; and (iv) by
deleting subsection (d) thereof.
14. Section 3.6 of the Plan is amended by replacing it with the
following new Section 3.6:
"Section 3.6 Changes in Employment Status. If a
Participant has a change in his or her employment
responsibilities, title and/or compensation, such that the
Participant would not qualify for initial participation in
the Plan as a Group A Participant or Group B Participant, as
determined by the Committee, (i) the Participant shall
continue to make deferrals in accordance with the
Participant's Permissible Deferral election for the Plan
Year during which the change in employment responsibilities,
title and/or compensation occurs, (ii) the Participant shall
not be eligible to make Permissible Deferrals in Plan Years
following the Plan Year during which the change in
employment responsibilities, title and/or compensation
occurs unless and until the Participant again qualifies for
initial participation as a Group A Participant or a Group B
Participant, as determined by the Committee, and (iii) the
Participant shall otherwise continue to participate in the
Plan.
15. Section 3.7 of the Plan is deleted therefrom in its entirety.
16. Section 4.1.1 of the Plan, as previously amended, is further amended
by replacing the phrase "of the following calendar month" in the last sentence
of the second paragraph thereof with the phrase "that month".
17. Section 4.1.2 of the Plan, as previously amended, is further amended
(i) by replacing the second and third sentences of the first paragraph thereof
with the following new sentences:
"For each $1.00 of Base Salary or Bonus deferred pursuant to
Section 4.1.1, the Company shall post an additional .50 to
the Participant's Account,
4
<PAGE> 5
provided, however, that for Executives, the total of all
Matching Contributions made pursuant to this Section 4.1.2 shall
not exceed one hundred forty percent (140%) of the Executive's
total annual salary and wages paid by all Affiliates to such
individual, as determined as of the later of July 1, 1998 or the
date on which the Executive first became eligible to participate in
the Plan, and for Account Executives, the total of all Matching
Contributions shall not exceed one hundred forty percent (140%) of
the Account Executive's aggregate earnings and wages paid by all
Affiliates to such individual during the twelve-month period ending
on September 30 of the calendar year immediately preceding the Plan
Year in which the Account Executive first becomes eligible to
participate in the Plan. For purposes of the two immediately
preceding sentences, such annual salary and wages and such annual
earnings and wages shall include and exclude the same items of
remuneration as are included or excluded from annual salary and
wages and annual earnings and wages in the definition of Base
Salary.";
and (ii) by replacing the phrase "of the following calendar month" in the first
sentence of the second paragraph thereof with the phrase "that month".
18. Section 4.1.3 of the Plan, as previously amended, is further amended
by replacing the phrase "of the following calendar month" in the first sentence
of the second paragraph thereof with the phrase "that month".
19. Section 6.4.2 of the Plan is amended (i) by replacing the phrase
"Section 6.4.5" in the first sentence thereof with the phrase "Section 6.4.4";
and (ii) by replacing the phrase "either Section 6.4.3 or Section 6.4.4" in the
last sentence thereof with the phrase "Section 6.4.3".
20. Section 6.4.3 of the Plan is amended by replacing it with the
following new Section 6.4.3:
"6.4.3 The amount of each level payment for the Initial
Payment Period, if any, shall be calculated using the balance
in the Account as of the beginning of the Initial Payment Period
and amortizing such balance over the remaining Overall Payment
Period using an assumed interest rate equal to the rate of one-year
United States Treasury notes, said rate to be determined once each
Plan Year and to be the rate in effect as of the September 30
immediately preceding the payment period to which it applies, as
published by Solomon Brothers, Inc., or any successor thereto, or
as determined by the Chief Financial Officer of the Company (the
"Assumed Interest Rate"). The amount of each level payment for
each Calendar Year Payment Period shall be calculated by taking the
balance in the Account as of November 30 of the calendar year
immediately prior to such Calendar Year Payment Period, subtracting
the benefit payments made during the portion of such calendar year
following November 30, and amortizing the difference over the
remaining Overall Payment Period using the Assumed Interest Rate.
The amount of each level payment for the Remainder Payment Period,
if any, shall be calculated by taking the balance in the Account as
of November 30 of the calendar year immediately prior to the
Remainder Payment Period, subtracting the benefit payments made
during the portion of such calendar year following November 30, and
5
<PAGE> 6
amortizing the difference over the Remainder Payment Period
using an assumed interest rate of zero percent (0%) per annum. If
the actual crediting rate for the Remainder Payment Period is more
than zero percent, the additional gain resulting from the
difference shall be paid to the Participant in a single payment
within six months after the last day of the Remainder Payment
Period."
21. Section 6.4.4 of the Plan is deleted, and Sections 6.4.5, 6.4.6 and
6.4.7 are redesignated as Sections 6.4.4, 6.4.5 and 6.4.6, respectively.
22. Section 6.4.6 (previously Section 6.4.7) of the Plan is amended by
replacing the reference to "Section 6.4.4" therein with the phrase "Section
6.4.3".
23. Section 9.1 of the Plan, as previously amended, is further amended
by replacing the references to "Section 6.4.4" and "Section 6.4.7" therein with
the phrases "Section 6.4.3" and "Section 6.4.6", respectively.
24. Except as modified in this Amendment No. 10, the Plan, as previously
amended, shall remain in full force and effect, including the Company's right
to amend or terminate the Plan as set forth in Article 9 of the Plan.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
------------------------------------
Its: President and Chief Executive Officer
------------------------------------
6
<PAGE> 1
EXHIBIT 10(B)
AMENDMENT NO. 6
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; and by
Amendment No. 5, effective January 1, 1997. The Company continues to retain
the right to amend the Plan, pursuant to action by the Company's Board of
Directors. The Company hereby exercises that right. This Amendment No. 6 is
effective as of March 1, 1998, except for the provisions of Paragraphs 16, 17 ,
which are effective as of April 1, 1998.
AMENDMENT
1. The first sentence of the introductory paragraph of the Plan is
replaced with the following new sentence:
"H&R Block, Inc. (the "Company") hereby establishes,
effective May 1, 1994, a nonqualified deferred compensation
plan for the benefit of specified Executives of 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, and
the U.S. subsidiaries of such indirect subsidiaries; and
such other entities as may be designated by the Company from
time to time."
2. The following new Section 2.1.1a is added to the Plan immediately
after Section 2.1.1 and before Section 2.1.2:
"2.1.1a 'Account Executive' means a person who has the
title of Account Executive, is employed on a full-time basis
by a Participating Affiliate, and is responsible for
managing, overseeing, directing or handling the accounts of
clients of the Participating Affiliate."
3. Section 2.1.4 of the Plan, as previously amended, is further
amended by replacing said Section 2.1.4 with the following new Section 2.1.4:
"2.1.4 'Annual Deferral Amount' means the amount of
Base Salary, and/or Bonus that a Participant elects to defer
each Plan Year under a Permissible Deferral. For those
individuals first eligible to participate in the Plan prior
to March 1, 1998, the amount of Base Salary included in the
Annual Deferral Amount shall be equal to a percentage of the
Participant's Base Salary that is not less than three
percent (3%) and not greater than thirty-five percent (35%),
and the amount of Bonus or Bonuses included in the Annual
Deferral Amount shall be equal to (i) a flat dollar amount,
expressed in one thousand dollar ($1,000) increments, or
(ii) a percentage of the Bonus or Bonuses paid during the
Plan Year that is not less than five
1
<PAGE> 2
percent (5%) and not greater than one hundred percent (100%),
expressed in five percent (5%) increments. For those individuals
first eligible to participate in the Plan on or after March 1,
1998, the amount of Base Salary included in the Annual Deferral
Amount shall be equal to a percentage within such parameters as are
established by the Committee in its sole and absolute discretion,
and the amount of Bonus or Bonuses included in the Annual Deferral
Amount shall be equal to a percentage or flat dollar amount within
such parameters as are established by the Committee.
4. Section 2.1.5 of the Plan, as previously amended, is further amended
(i) by replacing the words "a Participant" in the first sentence with the words
"an Executive"; (ii) by inserting the following sentence after the first
sentence thereof:
"The 'Base Salary' of an Account Executive for any Plan Year
means the total earnings and wages, including any and all
commissions, incentives and bonuses, paid by all Affiliates
to such individual during that Plan Year, including any
amount which would be included in the definition of Base
Salary, but for the individual's election to defer some of
his or her earnings pursuant to this Plan or some other
deferred compensation plan established by an Affiliate; but
excluding any other remuneration paid by Affiliates, such as
overtime, stock options, distributions of compensation
previously deferred, restricted stock, allowances for
expenses (including moving, travel expenses, and automobile
allowances), and fringe benefits payable in a form other
than cash.";
and (iii) by inserting the phrase "or earnings" after the phrase "reduce his or
her salary" in the last sentence of said Section.
5. Section 2.1.8 of the Plan is amended (i) by replacing the words "a
Participant" in the first sentence with the words "an Executive"; and (ii) by
adding the following new sentence to the end of this Section:
"For the purposes of this Plan, the terms Bonus and Bonuses
specifically exclude any and all types of commissions,
incentives or bonuses paid by any Affiliate to an Account
Executive."
6. Section 2.1.19 of the Plan is amended by adding the following new
sentence to the end of said Section:
"For the Plan Year commencing on March 1, 1998, 'Enrollment
Period' means the immediately preceding period of January 1
through February 20, 1998."
7. Section 2.1.23 of the Plan is replaced with the following new
Section 2.1.23:
"2.1.23 'Participant' means an Executive or an Account
Executive who is eligible to participate in the Plan and has
elected to participate in the Plan."
2
<PAGE> 3
8. Section 2.1.24 of the Plan is replaced 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, 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."
9. Section 2.1.25 of the Plan, as previously amended, is further amended
by replacing the second and third sentences of the first paragraph thereof with
the following new sentences:
"For Executives, the aggregate of all deferrals may not
exceed two hundred eighty percent (280%) of the Executive's
total annual salary and wages paid by all Affiliates to such
individual, as determined as of the later of July 1, 1987 or
the date on which the Executive first became eligible to
participate in the Plan. For Account Executives, the
aggregate of all deferrals may not exceed two hundred eighty
percent (280%) of the Account Executive's aggregate earnings
and wages paid by all Affiliates to such individual during
the twelve-month period ending on September 30 of the
calendar year immediately preceding the Plan Year in which
the Account Executive first becomes eligible to participate
in the Plan. For purposes of the two immediately preceding
sentences, such annual salary and wages and such annual
earnings and wages shall include and exclude the same items
of remuneration as are included or excluded from annual
salary and wages and annual earnings and wages in the
definition of Base Salary.";
10. Section 2.1.27 of the Plan is amended by inserting the following
sentence after the second sentence thereof:
"For Permissible Deferrals elected to commence on March 1,
1998, 'Plan Year' means the ten-month period between March
1, 1998 and December 31, 1998, inclusive, and the calendar year
thereafter."
11. Section 3.1 of the Plan is amended by inserting the words "or
Account Executives" after the word "Executives" therein.
12. Section 3.2 of the Plan, as previously amended, is further amended
(i) by inserting the words "or Account Executive" after the word "Executive";
and (ii) by deleting the comma and phrase ", and subject to the provisions of
Sections 3.6 and 3.7" from the last sentence of said Section.
13. Section 3.3 of the Plan, as previously amended, is further amended
(i) by inserting the word "or" in between subsections (a) and (b) thereof;
(ii) by replacing the comma at the end of subsection (b) with a period; (iii) by
deleting the word "or" in between subsections (b) and (c) hereof; and (iv) by
deleting subsection (c) thereof.
3
<PAGE> 4
14. Section 3.6 of the Plan is amended by replacing it with the
following new Section 3.6:
"Section 3.6 Changes in Employment Status. If a
Participant has a change in his or her employment
responsibilities, title and/or compensation, such that the
Participant would not qualify for initial participation in
the Plan, (i) the Participant shall continue to make
deferrals in accordance with the Participant's Permissible
Deferral election for the Plan Year during which the change
in employment responsibilities, title or compensation
occurs, (ii) the Participant shall not be eligible to make
Permissible Deferrals in Plan Years following the Plan Year
during which the change in employment responsibilities,
title and/or compensation occurs unless and until the
Participant again qualifies for initial participation in the
Plan, and (iii) the Participant shall otherwise continue to
participate in the Plan."
15. Section 3.7 of the Plan is deleted therefrom in its entirety.
16. Section 4.1.1 of the Plan, as previously amended, is further amended
by replacing the phrase "of the following calendar month" in the last sentence
thereof with the phrase "that month".
17. Section 4.1.2 of the Plan, as previously amended, is further amended
by replacing the phrase "of the following calendar month" in the first sentence
of the second paragraph thereof with the phrase "that month".
18. Section 4.3.1 of the Plan, as previously amended, is further amended
(i) by deleting the phrase "which immediately follows the calendar month" in
the first sentence thereof; (ii) by deleting the phrase "the first calendar
month that immediately follows" in the second sentence thereof; and (iii) by
replacing the last sentence thereof with the following new sentence:
"Except for distributions in the form of a lump sum and
distributions pursuant to Section 6.6.2, a Participant's
Account shall be valued for each payment period specified in
Section 6.4 that follows the Plan Year in which benefit
payments commence as of November 30 of the calendar year
immediately preceding each such payment period, as described
in Section 6.4.2."
19. Section 4.3.2 of the Plan is amended by deleting the phrase "which
immediately follows the calendar month" from the first sentence thereof and by
adding the following new sentence at the end thereof:
"Except for distributions in the form of a lump sum, a
Participant's Account shall be valued for each payment
period specified in Section 6.4 that follows the Plan Year
in which benefit payments commence as of November 30 of the
calendar year immediately preceding each such payment
period, as described in Section 6.4.2."
20. Section 6.4.2 of the Plan is amended by replacing it with the
following new Section 6.4.2:
4
<PAGE> 5
"6.4.2 The amount of each level payment for the Initial
Payment Period, if any, shall be calculated using the
balance in the Account as of the beginning of the Initial
Payment Period and amortizing such balance over the
remaining Overall Payment Period using an assumed interest
rate equal to the rate of one-year United States Treasury
notes, said rate to be determined once each Plan Year and to
be the rate in effect as of the September 30 immediately
preceding the payment period to which it applies, as
published by Solomon Brothers, Inc., or any successor
thereto, or as determined by the Chief Financial Officer of
the Company (the "Assumed Interest Rate"). The amount of
each level payment for each Plan Year Payment Period shall
be calculated by taking the balance in the Account as of
November 30 of the calendar year immediately prior to such
Plan Year Payment Period, subtracting the benefit payments
made during the portion of such calendar year following
November 30, and amortizing the difference over the
remaining Overall Payment Period using the Assumed Interest
Rate. The amount of each level payment for the Remainder
Payment Period, if any, shall be calculated by taking the
balance in the Account as of November 30 of the calendar
year immediately prior to the Remainder Payment Period,
subtracting the benefit payments made during the portion of
such calendar year following November 30, and amortizing the
difference over the Remainder Payment Period using an assumed
interest rate of zero percent (0%) per annum. If the actual
crediting rate for the Remainder Payment Period is more than
zero percent, the additional gain resulting from the
difference shall be paid to the Participant in a single
payment within six months after the last day of the
Remainder Payment Period."
21. Section 6.4.3 of the Plan is deleted therefrom in its entirety and
Section 6.4.4 is redesignated as Section 6.4.3.
22. Except as modified in this Amendment No. 6, the Plan, as previously
amended, shall remain in full force and effect, including the Company's right
to amend or terminate the Plan as set forth in Article 9 of the Plan.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
------------------------------------------
Its: President and Chief Executive Officer
------------------------------------------
5
<PAGE> 1
EXHIBIT 10(C)
AMENDMENT NO. 5
TO THE
H&R BLOCK
DEFERRED COMPENSATION PLAN FOR DIRECTORS
H&R BLOCK, INC. (the "Company") adopted the H&R Block Deferred
Compensation Plan for Directors (the "Plan") effective as of August 1, 1987.
The Company amended said Plan by Amendment No. 1 effective May 1, 1995; by
Amendment No. 2 effective December 11, 1996; by Amendment No. 3 effective May
1, 1997; and by Amendment No. 4 effective January 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. 5 is effective as of March 1, 1998, except for the provisions in
Paragraph 3, which are effective as of April 1, 1998.
AMENDMENT
1. The first sentence of the introductory paragraph of the Plan is
replaced with the following new sentence:
"H&R Block, Inc. (the "Company") hereby establishes, effective
September 1, 1987, a nonqualified deferred compensation plan
for the benefit of specified Directors of the Company and such
other entities as may be designated by the Company from time
to time."
2. Section 2.1.15 of the Plan, as previously amended, is further amended
by inserting the phrase "Option One Mortgage Corporation," immediately after
the phrase "Block Financial Corporation," therein.
3. Section 4.1 of the Plan, as previously amended, is further amended by
replacing the phrase "the following calendar month" in subsection (c)(ii)
thereof with the phrase "that month".
4. Section 6.2.3 of the Plan, as previously amended, is further amended
by replacing it with the following new Section 6.2.3:
"6.2.3 The amount of each level payment for the Initial
Payment Period, if any, shall be calculated using the balance
in the Account as of the beginning of the Initial Payment Period and
amortizing such balance over the remaining Overall Payment Period
using an assumed interest rate equal to the rate of one-year United
States Treasury notes, said rate to be determined once each Plan
Year and to be the rate in effect as of the September 30 immediately
preceding the payment period to which it applies, as published by
Solomon Brothers, Inc., or any successor thereto, or as determined
by the Chief Financial Officer of the Company (the "Assumed Interest
Rate"). The amount of each level payment for each Calendar Year
Payment Period shall be calculated by taking the balance in the
Account as of November 30 of the calendar year immediately prior to
such Calendar Year Payment Period, subtracting the benefit payments
made during the portion of such calendar year following November 30,
and amortizing the difference over the remaining Overall Payment
Period using the Assumed Interest Rate. The amount of each level
1
<PAGE> 2
payment for the Remainder Payment Period, if any, shall be
calculated by taking the balance in the Account as of November 30 of
the calendar year immediately prior to the Remainder Payment Period,
subtracting the benefit payments made during the portion of such
calendar year following November 30, and amortizing the difference
over the Remainder Payment Period using an assumed interest rate of
zero percent (0%) per annum. If the actual crediting rate for the
Remainder Payment Period is more than zero percent, the additional
gain resulting from the difference shall be paid to the Participant
in a single payment within six months after the last day of the
Remainder Payment Period."
5. Section 6.2.6 of the Plan, as previously amended, is furtheramended
by replacing the phrase "Section 6.2.4" with the phrase "Section 6.2.3".
6. Section 6.2.4 of the Plan is deleted and Sections 6.2.5 and 6.2.6 are
redesignated as Sections 6.2.4 and 6.2.5, respectively.
7. Section 9.1 of the Plan, as previously amended, is further amended
(i) by replacing the phrases "Section 6.2.6" with the phrase "Section 6.2.5";
and (ii) by replacing the phrase "Section 6.2.4" with the phrase "Section
6.2.3".
8. Except as modified in this Amendment No. 5, the Plan, as previously
amended, shall remain in full force and effect, including the Company's right
to amend or terminate the Plan as set forth in Article 9 of the Plan.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
----------------------------------------
Its: President and Chief Executive Officer
----------------------------------------
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS 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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 107557
<SECURITIES> 1031699
<RECEIVABLES> 797318
<ALLOWANCES> 18149
<INVENTORY> 0
<CURRENT-ASSETS> 2029579
<PP&E> 76409<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2466519
<CURRENT-LIABILITIES> 1078336
<BONDS> 0
0
4
<COMMON> 1089
<OTHER-SE> 1095995
<TOTAL-LIABILITY-AND-EQUITY> 2466519
<SALES> 0
<TOTAL-REVENUES> 330885
<CGS> 0
<TOTAL-COSTS> 473863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (133493)
<INCOME-TAX> (50727)
<INCOME-CONTINUING> (82766)
<DISCONTINUED> 217978<F2>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135212
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 0
<FN>
<F1>PP&E BALANCE IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
<F2>NET OF TAXES OF $244,424.
</FN>
</TABLE>
