<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 1, 1999
H&R BLOCK, INC.
(Exact name of registrant as specified in charter)
MISSOURI 1-6089 44-0607856
-------- ------ ----------
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
4400 MAIN STREET, KANSAS CITY, MO 64111
--------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(816) 753-6900
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The audited financial statements of Olde Financial Corporation
("Olde") for the years ended December 31, 1998 and 1997,
together with the Report of Independent Auditors, and the
unaudited consolidated financial statements of Olde for the
six months ended September 24, 1999 and September 25, 1998 are
filed as part of this Current Report on Form 8-K/A.
(B) PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet of H&R
Block, Inc. as of October 31, 1999 and the pro forma
consolidated statements of earnings for the year ended April
30, 1999 and the six months ended October 31, 1999 are filed
as part of this Current Report on Form 8-K/A.
(C) EXHIBITS
Exhibit No. Description of Exhibit
23.1 Consent of Independent Auditors
99.1 Press release dated December 2, 1999
filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated December 1,
1999, is incorporated by this reference.
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 hereunto duly authorized.
H&R BLOCK, INC.
Date: February 14, 1999 By: /s/ Cheryl L. Givens
-------------------------------
Cheryl L. Givens
Vice President, Corporate Controller
<PAGE> 3
H&R Block, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Olde Financial Corporation
Consolidated Statements of Financial Condition as of September 24, 1999 and September 25,
1998 (Unaudited) F-2
Consolidated Statements of Operations for the nine months ended September 24, 1999 and
September 25, 1998 (Unaudited) F-4
Consolidated Statements of Cash Flows for the nine months ended September 24, 1999
and September 25, 1998 (Unaudited) F-5
Notes to Consolidated Financial Statements (Unaudited) F-6
Report of Independent Auditors F-7
Consolidated Statements of Financial Condition as of December 31, 1998 and 1997 F-8
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F-10
Consolidated Statements of Changes in Stockholder's Equity for the years ended December 31, 1998,
1997 and 1996 F-11
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-12
Notes to Consolidated Financial Statements F-13
H&R Block, Inc. (Pro Forma)
Description of Transaction F-22
Pro Forma Financial Statement Assumptions F-22
Pro Forma Consolidated Balance Sheet as of October 31, 1999 F-23
Notes to Pro Forma Consolidated Balance Sheet F-24
Pro Forma Consolidated Statement of Earnings for the year ended April 30, 1999 F-25
Pro Forma Consolidated Statement of Earnings for the six months ended October 31, 1999 F-26
Notes to Pro Forma Consolidated Statements of Earnings F-27
</TABLE>
F-1
<PAGE> 4
OLDE Financial Corporation
Consolidated Statements of Financial Condition
September 24, 1999 and September 25, 1998
(Unaudited)
<TABLE>
<CAPTION>
September 24, September 25,
1999 1998
-------------- --------------
<S> <C> <C>
Assets:
Cash $ 11,906,798 $ 11,429,765
Short term investments - at cost which approximates
market 33,014,548 27,874,881
U.S. Government and U.S. Government Agencies securities
purchased under agreements to resell - at resale amount 51,000,000 49,000,000
Special reserve account for benefit of customers:
U.S. Government securities purchased under
agreements to resell - at resale amount 40,757,000 55,022,000
Cash 3,501 6,335
Special reserve account for benefit of customers-PAIB
U.S. Government securities 993,500 --
--------------- ---------------
41,754,001 55,028,335
Deposits with clearing organizations:
Cash 220,000 1,735,000
U.S. Government and other securities - at market 8,447,780 5,025,570
--------------- ---------------
8,667,780 6,760,570
Receivables:
Customers 1,904,761,728 1,371,312,929
Brokers, dealers and clearing organizations 10,701,676 14,515,029
Other 6,089,346 8,687,127
Less reserve for doubtful accounts (1,848,416) (1,717,937)
--------------- ---------------
1,919,704,334 1,392,797,148
Securities owned - at market 32,433,919 43,081,360
Property and equipment - at cost less accumulated
depreciation and amortization of $50,475,784 and $44,722,348
at September 24, 1999 and September 25, 1998, respectively 51,746,693 51,897,287
Exchange memberships - at cost 793,778 793,778
Other 9,169,897 5,965,866
--------------- ---------------
$ 2,160,191,748 $ 1,644,628,990
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE> 5
OLDE Financial Corporation
Consolidated Statements of Financial Condition
September 24, 1999 and September 25, 1998
(Unaudited)
<TABLE>
<CAPTION>
September 24, September 25,
1999 1998
-------------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity:
Payable to customers $1,016,010,745 $ 967,972,764
Payable to brokers and dealers 682,721,070 277,607,087
Securities sold, not yet purchased - at market 6,447,620 8,343,672
Accrued income taxes 5,242,822 3,230,449
Real estate mortgages 9,381,675 15,411,639
Capital lease obligations 2,905,520 2,153,721
Accounts payable, accrued expenses and other 50,992,050 40,154,040
-------------- --------------
1,773,701,502 1,314,873,372
Stockholders' equity:
Common stock ($0.10 par value; 40,000,000 shares
authorized; 30,520,225 and 30,510,225 shares
issued and outstanding for Olde Financial
Corporation and $1.00 par value, 1,000 shares
issued and outstanding for Financial Marketing
Services, Inc. at September 24, 1999 and
September 25, 1998, respectively) 3,052,023 3,051,023
Additional paid-in capital 80,200 --
Retained earnings 383,358,023 326,704,595
-------------- --------------
Total stockholders' equity 386,490,246 329,755,618
-------------- --------------
$2,160,191,748 $1,644,628,990
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 6
OLDE Financial Corporation
Consolidated Statements of Operations
For Nine Months Ended September 24, 1999 and September 25, 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 24, September 25,
1999 1998
------------- -------------
<S> <C> <C>
Revenues:
Commissions $130,481,513 $117,267,940
Principal transactions 49,771,712 45,178,049
Interest 95,847,833 85,521,098
Other 16,380,510 14,211,929
------------ ------------
Total revenues 292,481,568 262,179,016
Expenses:
Employee compensation and benefits 108,586,101 98,896,316
Commissions, floor brokerage and fees 7,093,695 7,003,717
Communications 6,462,311 5,705,801
Advertising and promotional 12,223,742 11,276,705
General and administrative 20,326,965 25,125,809
Interest 41,955,053 39,526,776
Occupancy 15,560,285 15,667,965
Data processing and supplies 9,106,174 8,460,448
------------ ------------
Total expenses 221,314,326 211,663,537
------------ ------------
Income before income taxes 71,167,242 50,515,479
Income tax provision 27,346,000 21,236,500
------------ ------------
Net income $ 43,821,242 $ 29,278,979
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 7
OLDE Financial Corporation
Consolidated Statements of Cash Flows
For Nine Months Ended September 24, 1999 and September 25, 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 24, September 25,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 43,821,242 $ 29,278,979
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,470,270 5,799,158
(Increase) decrease in:
Special reserve account for benefit
of customers 146,494,281 (24,682,983)
Special reserve account for benefit
of customers - PAIB (993,500) --
Deposits with clearing organizations (1,845,810) (136,320)
Receivables from customer (630,749,144) (55,222,762)
Receivables from brokers, dealers,
and clearing organizations 985,037 6,658,893
Receivables from others 632,697 (176,171)
Securities purchased under agreements
to resell 197,000,000 99,000,000
Securities owned (2,428,438) 1,131,747
Other assets, net (4,267,441) 3,120,570
Increase (decrease) in:
Payables to customers (353,392,556) (150,499,340)
Payables to brokers and dealers 568,285,653 99,043,852
Securities sold, not yet purchased 2,131,971 (6,135,015)
Accrued income taxes 893,099 (802,609)
Accounts payable, accrued expenses
and other liabilities 23,603,476 4,076,410
------------- -------------
Net cash provided by operating activities (4,359,163) 10,454,409
Cash flows used in investing activities:
Capital expenditures (2,309,959) (7,309,077)
Cash flows provided by (used in) financing activities:
Issuance of common stock 81,200 --
Redemption of common stock -- (3,970,103)
Maturity of senior subordinated debentures -- (9,412,000)
Redemption of senior subordinated debentures -- (17,125,000)
Real estate mortgages obtained -- 6,945,189
Principal payments on real estate mortgages (4,676,018) (2,604,787)
Principal payments on capital lease obligations (1,113,470) (1,349,762)
------------- -------------
Net cash used in financing activities (5,708,288) (27,516,463)
Net increase (decrease) in cash (12,377,410) (24,371,131)
Cash and cash equivalents at the
beginning of period 57,298,756 63,675,777
------------- -------------
Cash and cash equivalents at end of period $ 44,921,346 $ 39,304,646
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 8
OLDE Financial Corporation
Notes to Consolidated Financial Statements
(Unaudited)
The Statements of Financial Condition as of September 24, 1999 and September 25,
1998, the Statements of Operations for the six months ended September 24, 1999
and September 25, 1998 and the Statements of Cash Flows for the six months ended
September 24, 1999 and September 25, 1998 have been prepared by Olde Financial
Corporation ("Olde"), without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial condition, results of operations and cash flows at
September 24, 1999 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto in Olde's December
31, 1998 audited financial statements included with this Current Report on Form
8-K/A.
F-6
<PAGE> 9
Report of Independent Auditors
We have audited the accompanying consolidated financial statements of OLDE
Financial Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonableness
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of OLDE
Financial Corporation and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Detroit, Michigan
February 8, 1999
F-7
<PAGE> 10
OLDE Financial Corporation
Consolidated Statements of Financial Condition
December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Assets:
Cash $ 28,587,972 $ 38,925,975
Short term investments - at cost which approximates
market 28,710,784 24,749,802
U.S. Government and U.S. Government Agencies securities
purchased under agreements to resell - at resale amount 248,000,000 148,000,000
Special reserve account for benefit of customers:
U.S. Government securities purchased under
agreements to resell - at resale amount 187,248,000 30,339,000
Cash 6,782 6,352
----------------------------------
187,254,782 30,345,352
Deposits with clearing organizations:
Cash 1,735,000 1,735,000
U.S. Government and other securities - at market 5,086,970 4,889,250
----------------------------------
6,821,970 6,624,250
Receivables:
Customers 1,274,012,584 1,316,090,167
Brokers, dealers and clearing organizations 11,686,713 21,173,922
Other, including $354,707 and $488,670 from,
affiliates at December 31, 1998 and December 31, 1997,
respectively 6,632,528 8,413,524
Less reserve for doubtful accounts (1,758,901) (1,620,505)
----------------------------------
1,290,572,924 1,344,057,108
Securities owned - at market 30,005,481 44,213,107
Property and equipment - at cost less accumulated
depreciation and amortization of $45,887,820 and $39,076,592
at December 31, 1998 and December 31, 1997, respectively 52,632,004 49,834,816
Exchange memberships - at cost (market value $2,501,500) 793,778 793,778
Other 4,902,456 9,086,436
----------------------------------
$ 1,878,282,151 $ 1,696,630,624
==================================
</TABLE>
F-8
<PAGE> 11
OLDE Financial Corporation
Consolidated Statements of Financial Condition
December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity:
Payable to customers $ 1,369,403,301 $ 1,118,472,104
Payable to brokers and dealers 114,435,417 178,563,235
Securities sold, not yet purchased - at market 4,315,649 14,478,687
Accrued income taxes 4,349,723 4,033,058
Real estate mortgages 14,056,915 11,071,237
Capital lease obligations 1,743,990 2,950,930
Accounts payable, accrued expenses and other
including $457,410 and $1,317,266 to affiliates
at December 31, 1998 and December 31, 1997,
respectively 27,388,574 36,077,630
-------------------------------------
1,535,693,569 1,365,646,881
Subordinated debt:
12.5% Senior subordinated debentures due
August, 1998 0 9,412,000
9.6% Senior subordinated debentures due
May, 2002 0 17,125,000
-------------------------------------
0 26,537,000
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock ($0.10 par value; 40,000,000 shares authorized; 30,510,225 and
30,919,308 shares issued and outstanding at December 31, 1998
and December 31, 1997, respectively) 3,051,023 3,091,931
Retained earnings 339,537,559 301,354,812
-------------------------------------
Total stockholders' equity 342,588,582 304,446,743
-------------------------------------
$ 1,878,282,151 $ 1,696,630,624
=====================================
</TABLE>
F-9
<PAGE> 12
OLDE Financial Corporation
Consolidated Statements of Operations
For 1998, 1997, and 1996
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Commissions $ 161,058,303 $ 163,555,177 $ 144,766,503
Principal transactions 59,201,843 78,095,814 118,069,712
Interest 114,100,996 108,975,154 104,310,373
Other 19,319,135 16,570,480 12,873,785
-----------------------------------------------------------
Total revenues 353,680,277 367,196,625 380,020,373
Expenses:
Employee compensation and benefits 133,603,623 135,830,485 129,757,286
Commissions, floor brokerage and fees 8,988,833 9,638,214 9,992,414
Communications 8,357,984 8,614,927 10,570,143
Advertising and promotional (a) 14,883,598 15,463,793 16,770,577
General and administrative (b) 33,823,204 31,063,869 33,094,488
Interest 51,129,804 49,533,401 45,522,255
Occupancy (c) 20,195,585 20,847,562 22,000,283
Data processing and supplies 11,269,703 10,640,459 10,223,744
-----------------------------------------------------------
Total expenses 282,252,334 281,632,710 277,931,190
-----------------------------------------------------------
Income before income taxes 71,427,943 85,563,915 102,089,183
Income tax provision 29,316,000 32,006,000 38,342,000
-----------------------------------------------------------
Net income $ 42,111,943 $ 53,557,915 $ 63,747,183
===========================================================
Net income per common share $1.38 $1.70 $1.73
===== ===== =====
Weighted average shares
outstanding 30,512,393 31,526,901 36,795,781
</TABLE>
(a) Including approximately $12,000,000, $12,400,000, and $12,100,000 with
an affiliate in 1998, 1997, and 1996, respectively.
(b) Including approximately $377,300, $383,800, and $436,500 with an
affiliate in 1998, 1997, and 1996, respectively.
(c) Including approximately $67,300, $807,700 and $807,700 with the
Company's majority stockholder in 1998, 1997 and 1996, respectively.
F-10
<PAGE> 13
OLDE Financial Corporation
Consolidated Statements of Changes
in Stockholder's Equity
<TABLE>
<CAPTION>
Common Additional Paid Retained
Stock in Capital Earnings Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ 3,674,500 $ - $ 231,027,812 $ 234,702,312
Issuance of 65,000 shares of
Common Stock 6,500 408,850 - 415,350
Net Income - - 63,747,183 63,747,183
---------------------------------------------------------------------------
Balance, December 31, 1996 3,681,000 408,850 294,774,995 298,864,845
Redemption of 5,890,692 shares of
Common Stock (589,069) (408,850) (46,978,098) (47,976,017)
Net Income - - 53,557,915 53,557,915
---------------------------------------------------------------------------
Balance, December 31, 1997 3,091,931 0 301,354,812 304,446,743
Redemption of 409,083 shares of
Common Stock (40,908) - (3,929,196) (3,970,104)
Net Income - - 42,111,943 42,111,943
---------------------------------------------------------------------------
Balance, December 31, 1998 $ 3,051,023 $ 0 $ 339,537,559 $ 342,588,582
===========================================================================
</TABLE>
F-11
<PAGE> 14
OLDE Financial Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 42,111,943 $ 53,557,915 $ 63,747,183
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,293,322 8,380,555 9,327,929
Deferred income taxes 3,185,000 (3,008,000) (2,336,000)
(Increase) decrease in:
Special reserve account for benefit
of customers (156,909,430) 89,541,849 (109,622,393)
Deposits with clearing organizations (197,720) (929,851) 27,063
Receivables from customer 42,077,583 (162,549,118) 132,459,062
Receivables from brokers, dealers,
and clearing organizations 9,487,209 3,096,972 1,713,367
Receivables from others 1,919,392 (1,462,982) 2,536,823
Securities purchased under agreements
to resell (100,000,000) 31,974,000 (54,908,000)
Securities owned 14,207,626 (6,303,047) 7,613,288
Other assets, net 4,183,980 2,164,517 (2,001,275)
Increase (decrease) in:
Payables to customers 250,931,197 30,910,834 267,554,084
Payables to brokers and dealers (64,127,818) (778,322) (293,790,602)
Securities sold, not yet purchased (10,163,038) 7,489,152 1,021,527
Accrued income taxes (2,868,335) 480,484 2,620,447
Accounts payable, accrued expenses
and other liabilities (8,689,056) 9,796,417 (1,287,784)
---------------- --------------- ----------------
Net cash provided by operating activities 32,441,855 62,361,375 24,674,719
Cash flows used in investing activities:
Capital expenditures (9,537,957) (1,164,753) (4,661,321)
Cash flows provided by (used in) financing activities:
Issuance of common stock - - 415,350
Redemption of common stock (3,970,104) (47,976,017) -
Maturity of senior subordinated debentures (9,412,000) - (7,500,000)
Redemption of senior subordinated debentures (17,125,000) (3,463,000) -
Principal payments on real estate mortgages (3,959,512) (2,941,419) (3,438,075)
Real estate mortgages obtained 6,945,190 602,057 318,000
Principal payments on capital lease obligations (1,759,493) (2,873,133) (3,612,498)
---------------- ---------------- ----------------
Net cash used in financing activities (29,280,919) (56,651,512) (13,817,223)
Net increase (decrease) in cash (6,377,021) 4,545,110 6,196,175
Cash and cash equivalents at the
beginning of period 63,675,777 59,130,667 52,934,492
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 57,298,756 $ 63,675,777 $ 59,130,667
=============== =============== ===============
Interest Paid $ 51,812,000 $ 49,165,000 $ 45,136,000
=============== =============== ===============
</TABLE>
F-12
<PAGE> 15
OLDE Financial Corporation
Notes to Consolidated Financial Statements
December 31, 1998
1. Business
The accompanying financial statements present the consolidated financial
statements of the Company and its subsidiaries, OLDE Discount Corporation ("OLDE
Discount"), American Brokerage Services, Inc. ("ABS"), OLDE Asset Management,
Inc. ("OAM"), OLDE Realty Corporation ("ORC"), OLDE Property Corporation
("OPC"), OLDE Equipment Corporation ("OEC"), Realty Acquisitions, Inc. ("RAI"),
and Smart Travel, Inc. ("STI"). Material intercompany balances have been
eliminated for all periods presented.
The Company is a financial services company. OLDE Discount engages in a discount
securities brokerage business primarily for retail customers throughout the
United States. OLDE Discount also engages in market making and specialist
activities in common stocks and is a dealer in corporate and municipal bonds and
U. S. Government securities.
Other products and services provided to customers include: stock research and
recommendations; money market funds with sweep provisions for settlement of
customer transactions; fixed-income products; mutual funds; margin accounts;
checking privileges; option accounts; account access/review via the internet;
dividend reinvestment; and individual retirement accounts with no annual fee.
OAM provides portfolio management and administrative services to the OLDE
Custodian Fund, a money market fund series. ORC, OPC, and RAI are engaged in the
acquisition, ownership and operation of commercial real estate, leased primarily
to OLDE Discount. OEC leases computer hardware and software to OLDE Discount.
STI provides travel management and purchasing services primarily to OLDE
Discount.
ABS a registered securities broker-dealer is currently inactive. In February
1999 SmartVest, Inc. ("SV") a newly formed Michigan Corporation wholly owned by
the Company, initiated a registration and membership process with the National
Association of Securities Dealers, Inc. ("NASD") to become a successor
broker-dealer to ABS. It is planned that SV will introduce its customer accounts
to OLDE Discount and that OLDE Discount will carry SV's accounts and provide
clearing and execution service to SV on a fully disclosed basis. SV will be an
on-line brokerage firm.
2. Significant accounting policies
In the opinion of management, the accompanying audited consolidated financial
statements contain all adjustments, which consist only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
at December 31, 1998 and December 31, 1997, and the results of its operations
and its cash flows for the periods ended December 31, 1998, December 31, 1997,
and December 31, 1996. The Company's accounting policies have been consistently
followed.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
OLDE Discount is a registered securities broker-dealer and accounts for
securities transactions (and related commission revenue and expense) on the
trade date basis. The risk of loss on transactions as of trade date is
equivalent to the risk of loss on settlement date and relates to customers' or
other brokers' inability to meet the
F-13
<PAGE> 16
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
2. Significant accounting policies (continued)
terms of contracts. Credit risk is reduced by obtaining and maintaining adequate
collateral until the contract is settled.
The Company is a party to financial instruments with off balance sheet risk in
the normal course of its business. The Company is required, in the event of the
non-delivery of customers' securities owed the Company by other broker-dealers,
or by its customers, to purchase identical securities in the open market. Such
purchases could result in losses not reflected in the accompanying financial
statements.
Securities owned and securities sold, not yet purchased, are carried at market
value. Unrealized gains and losses are reflected in operations. Sales of
securities not yet purchased represent an obligation of the Company to deliver
specified securities at a predetermined date and price. The Company will be
obligated to acquire the required securities at prevailing market prices in the
future to satisfy this obligation.
Securities purchased under agreements to resell are treated as financing
transactions and are carried at the amounts at which the securities will be
subsequently resold as specified in the respective agreements. Collateral
relating to investments in repurchase agreements is held by independent
custodian banks. The securities are valued daily and collateral added whenever
necessary to bring the market value of the underlying collateral equal to or
greater than the repurchase price specified in the contracts.
Depreciation and amortization are provided using both straight-line and
accelerated methods over estimated useful lives of three to thirty nine years.
Leasehold improvements are amortized using both straight-line and accelerated
methods.
The Company considers all non-segregated highly liquid investments (short-term
investments) with a maturity of three months or less when purchased to be cash
equivalents.
3. Special reserve account for benefit of customers
U.S. Government securities purchased under agreements to resell and cash have
been segregated in a special reserve account for the exclusive benefit of
customers pursuant to federal regulations under Rule 15c3-3 of the Securities
Exchange Act of 1934.
F-14
<PAGE> 17
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
4. Securities owned and securities sold, not yet purchased
At December 31, 1998 and December 31, 1997 marketable securities owned and
securities sold, net yet purchased consist of trading and investment securities
at quoted market values, as follows:
<TABLE>
<CAPTION>
Securities Owned
1998 1997
--------------- --------------
<S> <C> <C>
U.S. Government Securities $ 1,303,473 $ 4,265,954
Municipal Securities 18,709,776 12,124,921
Various Fixed Income Securities
(Including Preferred Stock) 8,838,883 14,618,128
Equity Securities 1,153,349 13,204,104
--------------- --------------
Total $ 30,005,481 $ 44,213,107
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
Securities Sold, Net Yet Purchased
1998 1997
--------------- --------------
<S> <C> <C>
U.S. Government Securities $ 23,609 $ 723,624
Municipal Securities 470,440 5,375
Various Fixed Income Securities
(Including Preferred Stock) 2,816,038 1,700,949
Equity Securities 1,005,562 12,048,739
--------------- --------------
Total $ 4,315,649 $ 14,478,687
=============== ==============
</TABLE>
5. Receivables from customers
Receivables from customers include amounts due on margin and cash transactions.
The receivables are collateralized by customers' securities held, which are not
reflected in the financial statements.
6. Receivables and payables with brokers, dealers, and clearing organizations
Receivables from brokers generally are collected within thirty days and are
collateralized by securities in physical possession, on deposit, or receivable
from customers or other brokers. The Company does business with brokers who for
the most part are members of the major U.S. securities exchanges.
The Company monitors the credit standing of broker-dealers and customers with
whom it conducts business. In addition, the Company monitors the market value of
collateral held and the market value of securities receivable from others. The
Company seeks to obtain additional collateral if insufficient protection against
loss exists.
Amounts receivable from and payable to brokers, dealers, and clearing
organizations as of December 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Receivables: 1998 1997
--------------- --------------
<S> <C> <C>
Securities failed to deliver $ 495,824 $ 270,027
Deposits on securities borrowed 9,030,400 18,565,900
Clearing organizations and other 2,160,489 2,337,995
--------------- --------------
$ 11,686,713 $ 21,173,922
=============== ==============
</TABLE>
F-15
<PAGE> 18
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Payables: 1998 1997
--------------- --------------
<S> <C> <C>
Securities failed to receive $ 488,498 $ 814,917
Deposits for securities loaned 113,855,471 177,686,994
Other 91,448 61,324
--------------- --------------
Total $ 114,435,417 $ 178,563,235
=============== ==============
</TABLE>
7. Securities lending
At December 31, 1998, funds obtained under securities lending agreements, which
are included with payables to broker dealers, totaled $113.9 million. At
December 31, 1997, the securities lending amount was $177.7 million. Securities
loaned are securities held by customers on margin. When loaning securities, OLDE
Discount receives cash collateral approximately equal to the value of the
securities loaned. The amount of cash collateral is adjusted daily for market
fluctuations in the value of the securities loaned. Interest rates paid on the
cash collateral fluctuate with short-term interest rates.
8. Property and equipment
Property and equipment at cost consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Land $ 5,555,672 $ 5,086,797
Building and improvements 42,503,763 35,670,454
Furniture, fixtures, and equipment 50,460,389 48,154,157
--------------- --------------
Total Property and Equipment $ 98,519,824 $ 88,911,408
=============== ==============
</TABLE>
9. Bank lines of credit, debt, commitments and contingencies
At December 31, 1998, bank lines of credit available to OLDE Discount amounted
to $180 million. A line of credit in the amount of $80 million may be withdrawn
at the discretion of the bank. The Company has a $100 million committed line of
credit that expires in August 1999, and subject to the terms of the agreement,
may be extended for one year at the bank's discretion. Short-term bank loans
outstanding under the lines of credit are payable either on demand or upon
expiration of the line of credit and are collateralized by marketable securities
carried for the accounts of margin customers. Loans outstanding bear interest at
broker loan rates.
There were no borrowings under these lines of credit at December 31, 1998 or
December 31, 1997. There are no compensating balance requirements related to
these lines of credit.
As of December 31, 1998, OLDE Discount had provided a clearing corporation with
letters of credit totaling $82 million that satisfied margin deposit
requirements of $79.7 million. These letters of credit are secured by customers'
margin securities.
F-16
<PAGE> 19
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
9. Bank lines of credit, debt, commitments and contingencies (continued)
OLDE Discount leases office facilities over varying periods extending to 2005.
The Company's approximate minimum annual rental commitments under non-cancelable
operating leases are as follows:
<TABLE>
<S> <C>
1999 $ 7,090,000
2000 5,430,000
2001 3,752,000
2002 1,280,000
2003 486,600
Thereafter 111,400
-------------
$18,150,000
=============
</TABLE>
Certain of the office leases contain renewal options ranging from one to five
years. The office leases generally provide for rent escalation resulting from
increased real estate assessments for real estate taxes and other charges.
Rental expense for office facilities under non-cancelable operating leases was
$6.6 million, $7.1 million, and $6.6 million, respectively for the years ending
December 31, 1998, 1997 and 1996.
OLDE Equipment leases computer hardware. The following is a schedule of future
minimum lease payments under capital leases together with the present value of
the net minimum lease payments as of December 31, 1998:
<TABLE>
<S> <C>
1999 $ 1,141,879
2000 646,551
2001 93,981
-------------
Total minimum lease payments 1,882,411
Less amount representing interest 138,421
-------------
Present value of net minimum
lease payments $ 1,743,990
=============
</TABLE>
Computer systems financed under capital leases and hardware included in property
and equipment amounted to approximately $14.5 million and $13.9 million at cost
at December 31, 1998 and 1997, respectively, and accumulated amortization
amounted to approximately $11.4 million and $9.4 million, respectively.
Amortization of capital leases is included with depreciation and amortization
expense.
At December 31, 1998, OLDE Property Corporation had outstanding $14.1 million in
real estate mortgages. These mortgages are secured by substantially all land,
building and improvements of the Company. Mortgages outstanding bear interest at
6.25%, 7.75% and 8% per annum. These mortgages are being amortized over 7 year
periods, with projected maturities of 2001, 2002, and 2005, respectively. The
following is a schedule of future minimum principal mortgage payments:
<TABLE>
<S> <C>
1999 $ 4,064,178
2000 3,873,253
2001 2,265,612
2002 1,327,689
2003 1,122,756
Thereafter 1,403,427
-------------
Total $ 14,056,915
=============
</TABLE>
F-17
<PAGE> 20
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
9. Bank lines of credit, debt, commitments and contingencies (continued)
OLDE Discount is a defendant and respondent in a number of civil actions,
arbitrations, and class actions arising out of its business as a broker-dealer.
The Company believes it has meritorious defenses against these claims and
intends to assert them vigorously. It is management's opinion that the
disposition of these claims will not have a material adverse effect on the
financial condition of the Company.
A consolidated certified class action in Federal court alleging that 35
securities dealers conspired to fix and maintain artificial bid-ask spreads on
certain securities traded on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") over-the-counter market has been settled.
The Company denies any improper activity occurred and joined the other settling
brokerage firms in settling the matter to avoid the costs, expenses, and
distractions of further litigation. OLDE Discount's portion of the settlement
was fully reserved as of December 1997, and was paid in September 1998.
The Securities and Exchange Commission ("SEC") has completed its investigation
of the Nasdaq market, which focused upon the dealer conduct alleged in the
consolidated class action. In January 1999, without admitting or denying
liability, OLDE Discount, along with 27 other Nasdaq dealers settled the SEC's
investigation. The settlement included the payment of a fine and retention of an
independent consultant who will conduct a review of OLDE Discount's and the 27
other dealer firms' Nasdaq trading, compliance, and supervisory systems. The
firm will implement the consultant's recommendations. The fine was fully
reserved in 1998 and was paid in January 1999.
OLDE Discount was the subject of an investigation by the SEC and National
Association of Securities Dealers Regulation, Inc. ("NASDR"). The investigations
focused on certain sales practices of the broker-dealer during the years 1992 to
1995. In September 1998, without admitting or denying liability, OLDE Discount
settled both the SEC and NASDR investigations. The settlements included the
payment of fines and certain undertakings to conduct an independent review of
its current sales policies, practices and procedures and to adopt and implement
such additional amended policies and procedures as may be recommended in the
course of this review. The fines were fully reserved and were paid in September
1998.
F-18
<PAGE> 21
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
10. Subordinated Debt
On August 1, 1998, the Company's $9,412,000 of 12.5% Senior Subordinated
Debentures matured, and were repaid.
On September 1, 1998, the Company called $17,125,000 of outstanding 9.6% Senior
Subordinated Debentures due May 1, 2002 at a premium of 2% over the principal
amount.
11. Net capital requirements
OLDE Discount is required to maintain minimum net capital as defined under Rule
15c3-1 of the Securities Exchange Act of 1934 and has elected to comply with the
alternative net capital requirement, which requires a broker-dealer to maintain
minimum net capital equal to the greater of $1 million or 2% of the combined
aggregate debit balances arising from customer transactions, as defined. The net
capital rule also provides that equity capital may not be withdrawn or cash
dividends paid if resulting net capital would be less than the greater of 5% of
combined aggregate debit items or $1 million. At December 31, 1998, OLDE
Discount's net capital of $286.2 million, which was 21% of aggregate debit
items, exceeded by $259 million its minimum required net capital of $27.2
million.
ABS is subject to the SEC Uniform Net Capital Rule 15c3-1, which requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital (net capital ratio), shall not exceed 15 to 1. At
December 31, 1998, ABS had net capital of $1,683,489, which was $1,433,489 in
excess of its required net capital $250,000. ABS's net capital ratio was .014 to
1.
F-19
<PAGE> 22
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
12. Income taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) at December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Contingencies reserve $ 2,349,000 $ 5,778,000
Tax over book depreciation (243,000) (420,000)
Reserve for doubtful accounts 616,000 567,000
Employee benefits 553,000 572,000
Prepaid expenses (257,000) (293,000)
Other 77,000 76,000
------------- -------------
$ 3,095,000 $ 6,280,000
============= =============
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ 23,432,000 $ 32,066,000 $ 36,787,000
State & local 2,699,000 2,948,000 3,891,000
------------- ------------- -------------
Total current tax 26,131,000 35,014,000 40,678,000
Deferred (Credit):
Federal 3,185,000 (3,008,000) (2,336,000)
------------- -------------- --------------
$ 29,316,000 $ 32,006,000 $ 38,342,000
============= ============= =============
</TABLE>
A reconciliation of the total federal income tax provision and the amount
computed by applying the statutory federal income tax rate to earnings before
income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Tax at U.S. statutory rates $ 24,998,867 $ 29,947,140 $ 35,730,990
Impact of state and
Local taxes (944,650) (1,031,800) (1,361,850)
Other 2,562,783 142,660 81,860
------------- ------------- -------------
$ 26,617,000 $ 29,058,000 $ 34,451,000
============= ============= =============
</TABLE>
Total income taxes paid approximated $25 million, $32.3 million, and $40.5
million for 1998, 1997, and 1996, respectively.
F-20
<PAGE> 23
OLDE Financial Corporation
Notes to Consolidated Financial Statements (Continued)
13. Related party transactions
Directors and officers of the Company and their associates maintain cash
accounts and margin accounts with OLDE Discount and execute securities
transactions through OLDE Discount in the ordinary course of business.
OLDE Discount purchases significant advertising and promotional material from
Financial Marketing Services, Inc. ("FMS"), a Michigan corporation wholly-owned
by the majority shareholder of the Company, and North American Printing Company
("North American") formerly Sumner Press, Ltd., a Canadian company controlled by
FMS. North American supplies FMS with substantially all of OLDE Discount's
printed advertising materials. In total, the Company's advertising purchases
from FMS amounted to approximately $11.5 million, $11.9 million, and $11.7
million for the years ending December 31, 1998, 1997, and 1996, respectively.
Other subsidiaries of FMS charged the Company approximately $852,000, $887,700,
and $850,000 in the same periods, respectively, primarily for mailing and
general services.
In February 1998, OLDE Property Corporation purchased the Company's two
corporate headquarter buildings and a nearby warehouse facility from the
Company's majority shareholder for $7 million. The buildings were then leased to
OLDE Discount.
In January 1998, the Board of Directors of OLDE Discount declared and paid a
dividend in the amount of $3,775,003 to OLDE Financial Corporation. The Company
utilized these funds to redeem shares of its capital stock in the amount of
$3,970,104. OAM paid a dividend to the Company in August in the amount of
$4,000,000.
At December 31, 1998 and 1997, the Company held investments of $15 million and
$14.2 million, respectively, in shares of money market mutual funds sponsored
and managed by subsidiaries of the Company.
14. Estimated fair values of financial instruments
Generally accepted accounting principles currently require disclosure of
estimated fair market values of financial instruments. The Company uses present
value techniques to determine the estimated values of its financial instruments
where quoted market values are not available. These techniques require judgment,
and the estimates may be significantly affected by the assumptions made. A
portion of the Company's financial instruments are securities traded in
nationally recognized financial markets. These instruments are carried in the
Company's financial statements at quoted market value or the market value for
comparable securities which represents estimated fair value. Changes in market
values of these instruments are reflected in current operating results.
A substantial portion of the Company's other financial instruments, consisting
primarily of customer margin loans and customer credit balances, earn or pay
rates of interest that change in accordance with general changes in short-term
interest rates. Such instruments are carried in the financial statements at the
amount receivable or payable on demand, which is considered to be the estimated
fair value.
The above disclosures do not extend to estimated fair value amounts for items
not defined as financial instruments by FASB No. 107 "Disclosures About Fair
Value of Financial Instruments", for example customer relationships, which
possess significant value.
F-21
<PAGE> 24
H&R BLOCK, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DESCRIPTION OF TRANSACTION
On December 1, 1999, H&R Block, Inc. (the "Company"), through its wholly-owned
subsidiary Block Financial Corporation ("BFC"), completed its acquisition of the
outstanding capital stock of OLDE Financial Corporation and its subsidiaries
("Olde"). The purchase price paid by BFC was $850 million cash plus an estimated
net tangible book value payment of $37.1 million. A final cash adjustment will
be made based on the aggregate consolidated net tangible book value at the
acquisition date, after a final independent audit of the balance sheet is
completed. The acquisition will be accounted for as a purchase.
The Company obtained a $750 million acquisition facility to support commercial
paper issued to acquire Olde. At the closing date of December 1, 1999, the
transaction was funded using the commercial paper and internal cash. It is the
intent of the Company to convert approximately $500 million of the short-term
commercial paper borrowings into term debt through a debt offering in the
fourth quarter of fiscal 2000. In the pro forma consolidated financial
statements, it is assumed that $500 million of long-term debt has been issued.
PRO FORMA FINANCIAL STATEMENT ASSUMPTIONS
The Company's fiscal year end is April 30. The accompanying pro forma
consolidated balance sheet is as of October 31, 1999, the date of the most
recent balance sheet the Company has filed with the Securities and Exchange
Commission, and assumes that the acquisition of Olde occurred on that date.
Included in the Company's pro forma consolidated balance sheet is financial
information as of September 24, 1999 for Olde, due to a difference in fiscal
year ends.
The accompanying pro forma income statements are for the year ended April 30,
1999 and the six months ended October 31, 1999, and assume that the acquisition
of Olde occurred on May 1, 1998. Included in the Company's pro forma
consolidated statement of earnings for the year ended April 30, 1999 is
financial information for the twelve months ended March 26, 1999 for Olde,
derived by taking audited financial information for the year ended December 31,
1998, adding the quarter ended March 26, 1999 and deducting the quarter ended
March 27, 1998. Included in the Company's pro forma consolidated statement of
earnings for the six months ended October 31, 1999 is financial information for
the six months ended September 24, 1999 for Olde.
Since the pro forma financial statements are as of April 30 and October 31 and
are based on preliminary information related to the purchase, the actual
purchase adjustments will differ from those presented herein. In addition, the
Company intends to have an appraisal completed for the real estate acquired.
When completed, the real estate assets will be adjusted to fair market value,
creating differences in the purchase price allocation, including the amount
allocated to goodwill and other intangible assets, from those presented herein.
These unaudited pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have occurred had the merger been consummated on
the dates indicated and are not necessarily indicative of the future operating
results or financial position of the combined companies.
The pro forma financial statements assume that: (i) the adjusted stockholder's
equity at acquisition was $393.1 million, which is the adjusted stockholder's
equity of Olde as of September 24, 1999, (ii) the Company financed the
acquisition through the issuance of $500 million in ten-year long-term debt at a
fixed rate of 8.25% per annum and $389.386 million in short-term notes payable
at an average variable rate of 5.61% per annum for the annual period presented
and 5.59% per annum for the six-month period presented (iii) the carrying value
of Olde's assets and liabilities approximated fair market value on the date of
acquisition, except for exchange memberships which were adjusted to fair market
value (iv) goodwill and other intangible assets arising from the transaction
will be amortized on a straight-line basis over 15 years and (v) the one-year
non-compete agreement was expensed over 12 months in the consolidated statement
of earnings for the year ended April 30, 1999.
F-22
<PAGE> 25
H&R BLOCK, INC.
Pro Forma Consolidated Balance Sheet
October 31, 1999
(Unaudited, amounts in thousands)
<TABLE>
<CAPTION>
H&R Block,
Inc. Pro Forma
Consolidated Olde Subtotal Adjustments Pro Forma
------------ ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 168,182 $ 95,924 $ 264,106 $ -- $ 264,106
Marketable securities 43,831 50,199 94,030 -- 94,030
Receivables, net 727,738 6,089 733,827 -- 733,827
Receivables from customers, brokers, dealers
and clearing organizations -- 1,913,615 1,913,615 -- 1,913,615
Prepaid expenses and other current assets 169,198 9,390 178,588 -- 178,588
----------- ----------- ----------- ----------- -----------
Total current assets 1,108,949 2,075,217 3,184,166 -- 3,184,166
INVESTMENTS AND OTHER ASSETS:
Investments in marketable securities 218,103 32,434 250,537 -- 250,537
Excess of cost over fair value of net tangible
assets acquired 659,166 -- 659,166 501,494 (1) 1,160,660
Other 151,602 794 152,396 1,402 (1) 153,798
----------- ----------- ----------- ----------- -----------
1,028,871 33,228 1,062,099 502,896 1,564,995
PROPERTY AND EQUIPMENT, net 135,695 51,747 187,442 -- 187,442
----------- ----------- ----------- ----------- -----------
$ 2,273,515 $ 2,160,192 $ 4,433,707 $ 502,896 $ 4,936,603
=========== =========== =========== =========== ===========
CURRENT LIABILITIES:
Notes payable $ 625,666 $ -- $ 625,666 $ 389,386 (2) $ 1,015,052
Accounts payable, accrued expenses and deposits 108,314 31,916 140,230 -- 140,230
Accounts payable to customers, brokers and dealers -- 1,705,180 1,705,180 -- 1,705,180
Accrued salaries, wages and payroll taxes 24,708 19,076 43,784 -- 43,784
Accrued taxes on earnings 53,162 5,243 58,405 -- 58,405
Current portion of long-term debt 56,358 -- 56,358 -- 56,358
----------- ----------- ----------- ----------- -----------
Total current liabilities 868,208 1,761,415 2,629,623 389,386 3,019,009
LONG-TERM DEBT 352,598 -- 352,598 500,000 (2) 852,598
OTHER NONCURRENT LIABILITIES 104,051 12,287 116,338 -- 116,338
COMMITMENTS AND CONTINGENCIES -- -- -- -- --
STOCKHOLDERS' EQUITY:
Common stock 1,089 3,052 4,141 (3,052)(1) 1,089
Additional paid-in capital 419,411 80 419,491 (80)(1) 419,411
Accumulated other comprehensive income (loss) (16,313) -- (16,313) -- (16,313)
Retained earnings 997,534 383,358 1,380,892 (383,358)(1) 997,534
----------- ----------- ----------- ----------- -----------
1,401,721 386,490 1,788,211 (386,490) 1,401,721
Less cost of common stock in treasury 453,063 -- 453,063 -- 453,063
----------- ----------- ----------- ----------- -----------
948,658 386,490 1,335,148 (386,490) 948,658
----------- ----------- ----------- ----------- -----------
$ 2,273,515 $ 2,160,192 $ 4,433,707 $ 502,896 $ 4,936,603
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this
pro forma financial statement.
F-23
<PAGE> 26
H&R BLOCK, INC.
Notes to Pro Forma Consolidated Balance Sheet
October 31, 1999
(Unaudited, amounts in thousands)
(1) Adjustments to the balance sheet were made to record the changes in
goodwill and other intangible assets and debt financing resulting
from the purchase of Olde, as if the transaction had occurred on
October 31, 1999.
The computation of the purchase price is as follows:
<TABLE>
<S> <C>
Payments to shareholders $ 787,000
Payments to escrow 100,000
Non-compete agreement 100
----------
CASH PURCHASE PRICE $ 887,100
==========
</TABLE>
Exchange memberships were adjusted to fair market value. The
computation of the amount assigned to goodwill and other intangible
assets to be recorded on the purchase is as follows:
<TABLE>
<S> <C> <C>
Assets purchased $ 2,160,192
Less: Liabilities assumed (1,773,702)
Plus: Exchange memberships,
marked to market 1,402
----------
Net assets acquired 387,892
----------
Cash purchase price 887,100
Plus: Estimated acquisition expenses 2,286
Less: Net assets acquired (387,892)
----------
GOODWILL AND OTHER INTANGIBLE ASSETS $ 501,494
==========
</TABLE>
(2) The Company assumed the use of short-term notes payable and
long-term debt to finance the acquisition. The Company's existing
commercial paper program was used to obtain $389,386 of notes
payable. The remaining purchase price will be financed with a
$500,000 long-term debt offering.
<TABLE>
<S> <C>
Cash purchase price $ 887,100
Plus: Estimated acquisition expenses 2,286
----------
Total financing needed $ 889,386
==========
TOTAL LONG-TERM DEBT $ 500,000
==========
TOTAL SHORT-TERM NOTES PAYABLE $ 389,386
==========
</TABLE>
F-24
<PAGE> 27
H&R BLOCK, INC.
Pro Forma Consolidated Statement of Earnings
Year Ended April 30, 1999
(Unaudited, amounts in thousands)
<TABLE>
<CAPTION>
H&R Block,
Inc. Pro Forma
Consolidated Olde Subtotal Adjustments Pro Forma
------------ ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenues $ 1,324,494 $ 328,401 $ 1,652,895 $ $ 1,652,895
Product sales 174,124 -- 174,124 -- 174,124
Royalties 123,201 -- 123,201 -- 123,201
Other 22,846 20,224 43,070 -- 43,070
----------- ----------- ----------- ----------- -----------
1,644,665 348,625 1,993,290 -- 1,993,290
----------- ----------- ----------- ----------- -----------
EXPENSES:
Employee compensation and benefits 610,866 136,078 746,944 -- 746,944
Occupancy and equipment 232,003 28,838 260,841 -- 260,841
Marketing and advertising 90,056 15,742 105,798 -- 105,798
Bad debt 71,662 180 71,842 -- 71,842
Interest 69,338 49,577 118,915 63,095(1) 182,010
Supplies, freight and postage 57,157 11,441 68,598 -- 68,598
Other 158,509 42,199 200,708 33,533(1) 234,241
----------- ----------- ----------- ----------- -----------
1,289,591 284,055 1,573,646 96,628 1,670,274
----------- ----------- ----------- ----------- -----------
Operating earnings 355,074 64,570 419,644 (96,628) 323,016
OTHER INCOME:
Investment income, net 32,234 14,132 46,366 -- 46,366
Other, net (3,767) -- (3,767) -- (3,767)
----------- ----------- ----------- ----------- -----------
28,467 14,132 42,599 -- 42,599
Earnings from continuing operations before
income taxes 383,541 78,702 462,243 (96,628) 365,615
Taxes on earnings 145,746 32,084 177,830 (24,014)(2) 153,816
----------- ----------- ----------- ----------- -----------
NET EARNINGS FROM CONTINUING
OPERATIONS $ 237,795 $ 46,618 $ 284,413 $ (72,614) $ 211,799
=========== =========== =========== =========== ===========
BASIC NET EARNINGS PER SHARE
FROM CONTINUING OPERATIONS $ 2.38 $ 2.85 $ 2.12
=========== =========== ===========
DILUTED NET EARNINGS PER SHARE
FROM CONTINUING OPERATIONS $ 2.36 $ 2.82 $ 2.10
=========== =========== ===========
Basic weighted average shares outstanding 99,761 99,761 99,761
=========== =========== ===========
Diluted weighted average shares outstanding 100,821 100,821 100,821
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this pro
forma financial statement.
F-25
<PAGE> 28
H&R BLOCK, INC.
Pro Forma Consolidated Statement of Earnings
Six Months Ended October 31, 1999
(Unaudited, amounts in thousands)
<TABLE>
<CAPTION>
H&R Block,
Inc. Pro Forma
Consolidated Olde Subtotal Adjustments Pro Forma
------------ --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenues $ 226,202 $ 181,627 $ 407,829 $ -- $ 407,829
Product sales 94,241 -- 94,241 -- 94,241
Royalties 4,140 -- 4,140 -- 4,140
Other 6,923 10,991 17,914 -- 17,914
------------ --------- --------- ----------- ---------
331,506 192,618 524,124 -- 524,124
------------ --------- --------- ----------- ---------
EXPENSES:
Employee compensation and benefits 193,658 73,058 266,716 -- 266,716
Occupancy and equipment 110,599 14,867 125,466 -- 125,466
Marketing and advertising 19,855 7,711 27,566 -- 27,566
Interest 34,818 31,130 65,948 31,508(1) 97,456
Supplies, freight and postage 12,891 6,327 19,218 -- 19,218
Other 96,942 18,502 115,444 16,717(1) 132,161
------------ --------- --------- ----------- ---------
468,763 151,595 620,358 48,225 668,583
------------ --------- --------- ----------- ---------
Operating earnings (137,257) 41,023 (96,234) (48,225) (144,459)
OTHER INCOME:
Investment income, net 5,053 3,938 8,991 -- 8,991
Other, net 250 -- 250 -- 250
------------ --------- --------- ----------- ---------
5,303 3,938 9,241 -- 9,241
Earnings (loss) before income tax benefit (131,954) 44,961 (86,993) (48,225) (135,218)
Income tax expense (benefit) (50,143) 17,551 (32,592) (11,973)(2) (44,565)
------------ --------- --------- ----------- ---------
NET EARNINGS (LOSS) $ (81,811) $ 27,410 $ (54,401) $ (36,252) $ (90,653)
============ ========= ========= =========== =========
BASIC NET LOSS PER SHARE $ (0.84) $ (0.56) $ (.93)
============ ========= =========
DILUTED NET LOSS PER SHARE $ (0.84) $ (0.56) $ (.93)
============ ========= =========
Basic weighted average shares outstanding 97,764 97,764 97,764
============ ========= =========
Diluted weighted average shares outstanding 97,764 97,764 97,764
============ ========= =========
</TABLE>
The accompanying notes are an integral part of this pro
forma financial statement.
F-26
<PAGE> 29
H&R BLOCK, INC.
Notes to Pro Forma Consolidated Statements of Earnings
Year Ended April 30, 1999 and Six Months Ended October 31, 1999
(Unaudited, amounts in thousands)
(1) Adjustments to the statements of earnings were made to reflect the
change in interest expense and amortization of goodwill and other
intangible assets, as if the transaction had occurred on May 1, 1998.
<TABLE>
<CAPTION>
ix Months
Year Ended Ended
April 30, 1999 Oct. 31, 1999
-------------- -------------
<S> <C> <C>
Interest expense on long-term debt $ 41,250 $ 20,625 (a)
Interest expense on short-term notes payable 21,845 10,883 (b)
Increase in amortization of goodwill and other intangible assets 33,433 16,717 (c)
Amortization of non-compete agreement for 12 months 100 -- (d)
-------------- --------------
ADJUSTMENT TO OTHER OPERATING EXPENSES $ 96,628 $ 48,225
============== ==============
</TABLE>
(a) The Company plans to issue 10-year long-term debt totaling $500,000
to fund part of the purchase of Olde. The computation of the
increased interest expense uses an assumed interest rate of 8.25%,
based on the current interest rate environment incorporating the
Company's current investment grade rating and interest rate hedging
instruments already entered into on a portion of the debt. A 1/8%
increase in this rate would result in additional interest expense of
$625 for the fiscal year ended April 30, 1999 and $313 for the six
months ended October 31, 1999.
<TABLE>
<S> <C>
Long-term debt $ 500,000
Assumed annual interest rate 8.25%
--------------
Interest expense for fiscal year ended April 30, 1999 $ 41,250
==============
Interest expense for six months ended October 31, 1999 $ 20,625
==============
</TABLE>
(b) The Company is funding part of the purchase of Olde with $389,386 of
short-term notes payable, using its existing commercial paper
program. The computation of the increased interest expense uses the
actual daily average interest rate incurred by the Company for
short-term borrowings during the period of time presented in the pro
forma consolidated statements of earnings, which is variable based on
the market. A 1/8% increase in this rate would result in additional
interest expense of $487 for the fiscal year ended April 30, 1999 and
$243 for the six months ended October 31, 1999.
F-27
<PAGE> 30
H&R BLOCK, INC.
Notes to Pro Forma Consolidated Statements of Earnings
Year Ended April 30, 1999 and Six Months Ended October 31, 1999
(Unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
April 30, 1999 Oct. 31, 1999
-------------- -------------
<S> <C> <C>
Short-term notes payable $ 389,386 $ 389,386
Assumed annual interest rate 5.61% 5.59%
-------------- -------------
Annual interest expense $ 21,845 $ 21,767
==============
Interest expense for six months $ 10,883
=============
(c) The amount assigned to goodwill and other intangible assets related to
the purchase of Olde is $501,494. The computation of amortization on
this amount is as follows:
Goodwill and other intangible assets arising from the purchase of Olde $ 501,494
Divided by: Amortization period of 15 years 15
-------------
Amortization on goodwill and other intangible assets for fiscal year ended
April 30, 1999 $ 33,433
=============
Amortization on goodwill and other intangible assets for six months ended
October 31, 1999 $ 16,717
=============
(d) As part of the closing, a one-year non-compete agreement was signed
with an officer of Olde. This amount was expensed in the pro forma
consolidated statement of earnings for the fiscal year ended April 30,
1999.
(2) The tax effect of the adjustments to consolidated earnings was
calculated at the Company's statutory federal rate and blended state
rate of 38.0% for the year ended April 30, 1999 and the six months
ended October 31, 1999.
</TABLE>
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
April 30, 1999 Oct. 31, 1999
-------------- -------------
<S> <C> <C>
Interest expense on long-term debt $ 41,250 $ 20,625
Interest expense on short-term notes payable 21,845 10,883
Expense for non-compete agreement 100 --
-------------- -------------
PRO FORMA ADJUSTMENTS EXCLUDING
NON-DEDUCTIBLE AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE ASSETS $ 63,195 $ 31,508
============== =============
TAX EFFECT OF PRO FORMA ADJUSTMENTS $ (24,014) $ (11,973)
============== =============
</TABLE>
F-28
<PAGE> 31
EXHIBIT INDEX
Exhibit No. Description of Exhibit
23.1 Consent of Independent Auditors
99.1 Press release dated December 2, 1999, filed as
Exhibit 99.1 to the Company's Current Report on Form
8-K dated December 1, 1999, is incorporated herein by
this reference.
<PAGE> 1
EXHIBIT 23.1
[Ernst & Young Letterhead]
Consent of Independent Auditors
We consent to the inclusion in Form 8-K of H&R Block, Inc. and the
incorporation by reference in the registration statements of H&R Block, Inc.
listed below of our report dated February 8, 1999, with respect to the
consolidated financial statements of OLDE Financial Corpoation and subsidiaries
as of December 31, 1998 and 1997 and for the three years in the period ended
December 31, 1998, filed with the Securities and Exchange Commission:
Registration Statement No. 33-185 on Form S-8
Registration Statement No. 33-33889 on Form S-8
Registration Statement No. 33-54989 on Form S-8
Registration Statement No. 33-64147 on Form S-8
Registration Statement No. 333-62515 on Form S-8
Registration Statement No. 333-42143 on Form S-8
/S/ ERNST & YOUNG LLP
Detroit, Michigan
February 14, 2000
<PAGE> 1
EXHIBIT 99.1
H & R BLOCK
NEWS RELEASE
For further information:
Media Relations: Neil Getzlow, 816-932-4886
Investor Relations: Brian Schell, 816-932-7561
H & R BLOCK COMPLETES ACQUISITION OF OLDE
FOR RELASE DECEMBER 1, 1999
KANSAS CITY, MO. - H&R Block Inc. (NYSE:HRB) today announced it has
completed the acquisition of Olde Financial Corporation, parent of Olde
Discount Corporation, the fourth largest discount broker in the United States.
Block announced its plans September 1 to purchase all of the stock of Olde for
$850 million in cash.
Founded in 1955, H&R Block is a diversified company with subsidiaries
providing a wide range of financial products and services. H&R Block Tax
Services Inc. served 18.9 million taxpayers in more than 10,000 offices located
primarily in the United States, Canada, Australia and the United Kingdom in
1999. Option One Mortgage Corporation, Assurance Mortgage Corporation of
America and H&R Block Mortgage Company offer a full range of home mortgage
products. Through RSM McGladrey Inc. and HRB Business Services Inc., the
company has built a national accounting, tax and consulting firm. Block
Financial Corporation develops and publishes consumer financial and personal
productivity software, such as Kiplinger TaxCut(R). Quarterly results and
other information regarding H&R Clock are available on the company's web site
at www.hrblock.com.
###
