ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
H&R Block, Inc. is a diversified services corporation that was organized in 1955 under the laws of the State of Missouri (the "Company"). It is the parent corporation in a two-tier holding company structure as a result of a corporate restructuring effected in March 1993. The second-tier holding company is H&R Block Group, Inc., a Delaware corporation and the direct owner of all of the shares of the Company's primary operating subsidiary corporations. Such primary operating subsidiaries consist of H&R Block Tax Services, Inc., CompuServe Incorporated and Block Financial Corporation. Developments within each of these segments of the Company during fiscal year 1994 are described in the section below entitled "Description of Business."
During the year ended April 30, 1994, the Company was not involved in any bankruptcy, receivership or similar proceedings or any material reclassifications, mergers or consolidations and, except for the disposition of all of the stock of Interim Services Inc., the Company did not acquire or dispose of any material amount of assets otherwise than in the ordinary course of business.
In November 1993, the Company acquired MECA Software, Inc. ("MECA"), a Delaware corporation involved in developing, publishing and marketing personal productivity software products designed to assist individuals in managing personal finances and in preparing their income tax returns, for $45,384,000 in cash. On November 15, 1993, the Company, through Block Acquisition Corporation ("BAC"), an indirect wholly-owned subsidiary of the Company, completed a $6.625 per share cash tender offer for all of the outstanding shares of common stock, par value $.01 per share, of MECA. The tender offer commenced on October 18, 1993, pursuant to the terms of an Agreement and Plan of Merger dated as of October 12, 1993 (the "Merger Agreement"). A total of 4,469,391 shares of MECA stock, representing approximately 96% of MECA's outstanding shares, were properly tendered by MECA shareholders pursuant to the tender offer, and were purchased by BAC. The remaining MECA shares were acquired by the Company on
November 24, 1993, when, pursuant to the terms of the Merger Agreement, BAC was merged into MECA. In connection with the MECA transaction, the Company also acquired all rights to certain software code and editorial content marketed by MECA and thereby eliminated a significant portion of MECA's royalty obligations. MECA is a wholly-owned subsidiary of H&R Block Group, Inc.
Among the products marketed by MECA are TaxCut (trademark), a top-rated personal income tax return preparation software developed by Legal Knowledge Systems, Inc., a subsidiary of MECA, and Managing Your Money (trademark), computer software designed to assist individuals in managing personal finances. TaxCut is expected to provide the Company with products designed to address the market for taxpayers who prepare their own tax returns, while Managing Your Money is expected to complement the financial services offered by Block Financial Corporation and the on-line information services offered by CompuServe Incorporated.
On January 27, 1994, the Company (through its wholly-owned subsidiary, H&R Block Group, Inc.) sold its 100% interest in its indirect wholly-owned subsidiary, Interim Services Inc., through an initial public offering of 10,000,000 shares of common stock, par value $.01 per share, at an initial public offering price of $20.00 per share. The initial public offering was conducted in accordance with the terms of underwriting agreements among the Company, H&R Block Group, Inc., Interim Services Inc. and the underwriters. The closing of the transactions among the parties to the underwriting agreements occurred on February 3, 1994.
The initial public offering price was negotiated among the Company and representatives of the underwriters. Among the factors considered in determining the initial public offering price, in addition to prevailing market conditions, were Interim's historical performance, estimates of the business potential and earnings prospects of Interim, an assessment of Interim's management and the consideration of the above factors in relation to market valuation of companies in related businesses.
The Company received cash proceeds from the sale of Interim stock of $188,500,000 (which represents the initial public offering price of $200,000,000, less an underwriting discount of $11,500,000), as well as $30,000,000 from the retirement of a term loan to Interim, for net proceeds from the transaction of $218,500,000. The Company recorded a net gain on the sale of stock of $27,265,000.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information required by Item 101(b) of Regulation S-K relating to financial information about industry segments is contained in the Notes to the Consolidated Financial Statements in the Company's annual report to security holders for the fiscal year ended April 30, 1994, and is hereby incorporated by reference.
NUMBER OF EMPLOYEES
The Company, including its subsidiaries, has approximately 3,400 regular full-time employees. The highest number of persons employed by the Company during the fiscal year ended April 30, 1994, including seasonal employees, was approximately 82,800.
DESCRIPTION OF BUSINESS
H&R BLOCK TAX SERVICES, INC. ("TAX SERVICES")
GENERALLY. The income tax return preparation and related services segment continues to be the Company's largest business segment. Such services are provided to the public through a system of offices operated by Tax Services or by others to whom Tax Services has granted franchises. References in this Section to "Tax Services" include H&R Block Tax Services, Inc., and its subsidiaries involved in the income tax return preparation business, and references in this Section to "H&R Block" include both Tax Services and its franchisees.
Tax Services provides income tax return preparation services and electronic filing services worldwide and refund discounting services in Canada. In addition, H&R Block's Executive Tax Service provides income tax return preparation services generally to taxpayers with more complicated returns. H&R Block served 18,107,000 taxpayers worldwide during fiscal year 1994, a decrease from the 18,182,800 taxpayers served in fiscal year 1993. "Taxpayers served" includes taxpayers for whom H&R Block prepared income tax returns as well as taxpayers for whom Block provided only electronic filing services.
H&R Block also markets its knowledge of how to prepare income tax returns through its income tax training schools. These schools teach taxpayers how to prepare their own income tax returns, as well as provide Tax Services with a source of trained income tax return preparers. During the 1994 fiscal year, 133,458 students enrolled in H&R Block's basic and advanced income tax courses, compared to 133,268 students during fiscal year 1993.
TAX RETURN PREPARATION. During the 1994 income tax filing season (January 3 through April 30), H&R Block offices prepared approximately 15,181,000 individual United States and Canadian income tax returns. About 13,037,000 of these returns were United States returns, constituting 12.2% of an Internal Revenue Service estimate of total U.S. individual income tax returns filed during that time period. Tax Services prepared approximately 2,144,000 Canadian returns filed with Revenue Canada during the 1994 income tax filing season, a decrease from the 2,225,000 Canadian returns prepared in the previous year. H&R Block also prepares U.S. income tax returns in other countries and Australian tax returns in Australia. The returns prepared at offices in countries outside of the United States and Canada constituted 2.5% of the total returns prepared by H&R
Block in the last fiscal year. The following table shows the approximate number of income tax returns prepared at H&R Block offices in the United States and Canada during the last five tax filing seasons:
During the tax season, most H&R Block offices are open from 9:00 a.m. to 9:00 p.m. weekdays and from 9:00 a.m. to 5:00 p.m. Saturdays and Sundays. Office hours are often extended during peak periods. Most tax preparation business is transacted on a cash basis. The procedures of Tax Services have been developed so that a customer's tax return is prepared in his or her presence, in most instances in less than one hour, on the basis of information furnished by the customer. In all Company-owned offices and most franchised offices, tax returns are prepared with the assistance of a computer. After the customer's return has been initially prepared, he or she is advised of the amount of his or her tax due or refund. The return, however, is retained and reviewed for theoretical accuracy. After completion of this review and after copies of the return have been made, the return is presented to the customer for signature and filing. These post-preparation procedures must be modified somewhat for customers who desire to have their returns electronically filed (see "Electronic Filing," below). If an H&R Block preparer makes an error in the preparation of a customer's tax return that results in the assessment of any interest or penalties on addi- tional taxes due, while H&R Block does not assume the liability for the additional taxes, it guarantees payment of the interest and penalties.
EXECUTIVE TAX SERVICE. In addition to its regular offices, H&R Block offers tax return preparation services at Executive Tax Service offices in the United States and Canada. Appealing to taxpayers with more complicated returns, Executive Tax Service stresses the convenience of appointments, year-round tax service from the same preparer and private office interviews. The number of Executive Tax Service offices increased from 458 in fiscal year 1993 to 515 in 1994. In fiscal 1994, the number of Executive Tax Service clients increased to 513,726, compared to 432,497 in 1993 and 329,349 in 1992. Tax Services plans to continue to expand the Executive Tax Service segment of its tax return preparation business.
ELECTRONIC FILING. Tax Services and its participating franchisees offer to taxpayers a service consisting of the electronic filing of individual income tax returns. Electronic filing reduces the amount of time required for a taxpayer to receive a federal tax refund and provides assurance to the client that the return, as filed with the Internal Revenue Service, is mathematically accurate. If the customer desires, he or she may
have his or her refund deposited by the Treasury Department directly into his or her account at a financial institution designated by the customer. Tax Services and its franchisees filed approximately 7,559,000 tax returns electronically in 1994, compared to 7,302,000 in fiscal 1993 and 6,778,000 in fiscal 1992. In some areas of the United States in 1994, Tax Services offered the electronic filing service at no charge to those clients for whom H&R Block prepared the tax return.
For U.S. returns, H&R Block offers a refund anticipation loan service in conjunction with its electronic filing service. In cooperation with selected national banking institutions, electronic filing customers who meet certain eligibility criteria are offered the opportunity to apply for loans from the banks in amounts based upon the customers' anticipated federal income tax refunds. Under this program, income tax return information is simultaneously transmitted by H&R Block to the Internal Revenue Service and the lending bank. Within a few days after the date of filing, a check in the amount of the loan, less a transaction fee (retained by the bank), is received by the refund anticipation loan customer. The Internal Revenue Service then deposits the participating customer's actual federal income tax refund into a designated account at the bank in order for the loan to be repaid. H&R Block's tax return preparation fee and electronic filing fee may be withheld from the loan proceeds and paid by the bank to Tax Services or the franchisee involved. Approximately 5,554,000 refund anticipation loans were processed in 1994 by H&R Block, compared to 5,662,000 in 1993.
In 1994, H&R Block offered a service to transmit state income tax returns to state tax authorities in 18 states and plans to continue to expand this program as more states make this filing alternative available to their taxpayers. H&R Block also offered the electronic filing of U.S. income tax returns at offices located in Europe and the electronic filing of Australian and Canadian income tax returns at its offices in Australia and Canada, respectively.
CASH BACK. In Canada, the Company and its franchisees offer a refund discount ("Cash Back") program to their customers. The procedures which H&R Block must follow in conducting the program are specified by Canadian law. In accordance with current Canadian regulations, if a customer's tax return indicates that such customer is entitled to a tax refund, a check is issued by H&R Block to the customer for an amount which is equal to the sum of (1) 85% of that portion of the anticipated refund which is less than or equal to $300 and (2) 95% of that portion of the refund in excess of $300. The customer assigns to H&R Block the full amount of the tax refund to be issued by Revenue Canada. The refund check is then sent by Revenue Canada directly to H&R Block and deposited by H&R Block in its bank account. In accordance with the law, the discount is deemed to include both the tax return preparation fee and the fee for tax refund discounting. This program is financed by short-term borrowing. The number of returns discounted under the Cash Back program decreased from 871,592 in fiscal year 1993 to 663,951 in fiscal
year 1994. A decrease in 1994 was anticipated by the Company due to changes in procedures for the distribution of welfare payments in Canada.
OWNED AND FRANCHISED OFFICES. Most H&R Block offices are similar in appearance and usually contain the same type of furniture and equipment, in accordance with the specifications of Tax Services. Free-standing offices are generally located in business and shopping centers of large metropolitan areas and in the central business areas of smaller communities. All offices are open during the tax season. During the balance of the year only a limited number of offices are open, but through telephone listings, H&R Block personnel are available to provide service to customers throughout the entire year.
In fiscal year 1994, H&R Block also operated 895 offices in department stores, including 731 offices in Sears, Roebuck & Co. stores operated as "Sears Income Tax Service by H&R Block." During the 1994 tax season, the Sears facilities constituted approximately 7.6% of the tax office locations of H&R Block. In 1994, the Sears locations were operated under a license agreement that expires on December 31, 1994. A new license agreement is currently being negotiated and the Company has every reason to believe that Tax Services' contractual relationship with Sears will continue. Tax Services believes its relations with Sears to be excellent and that both parties to the license arrangement view the operations thereunder to date as satisfactory.
On April 15, 1994, there were 9,577 H&R Block offices in operation principally in all 50 states, the District of Columbia, Canada, Australia and Europe, compared to 9,511 offices in opera- tion on April 15, 1993. Of the 9,577 offices, 4,537 were owned and operated by Tax Services and 5,040 were owned and operated by independent franchisees. Of such franchised offices, 3,460 were owned and operated by "satellite" franchisees of Tax Services (described below), 907 were owned and operated by "major" fran- chisees (described below) and 673 were owned and operated by satellite franchisees of major franchisees. From time to time, the Company has acquired the operations of existing franchisees and Tax Services will continue to do so if future conditions warrant such acquisitions and satisfactory terms can be negotiated.
Two types of franchises have principally been granted by the tax services segment of the Company. "Major" franchisees entered into agreements with the Company (primarily in the Company's early years) covering larger cities and counties and providing for the payment of franchise royalties based upon a percentage of gross revenues of their offices. Under the agreements, the Company granted to each franchisee the right to the use of the name "H&R Block" and provided a Policy and Procedure Manual and other supervisory services. Tax Services offers to sell furniture, signs, advertising materials, office equipment and supplies to major franchisees. Each major franchisee selects and trains the employees for his or her office or offices. Since March 1993, HRB Royalty, Inc., a Delaware corporation and a wholly-owned subsidiary of Tax Services, has served as the franchisor under the major franchise agreements.
In smaller localities, Tax Services grants what it terms "satellite" franchises. A satellite franchisee receives from Tax Services signs, designated equipment, specialized forms, local advertising, initial training, and supervisory services and, consequently, pays the Company a higher percentage of his or her gross tax return preparation and related service revenues as a franchise royalty than do major franchisees. Substantially all of the satellite franchises of Tax Services are located in cities with populations of 15,000 or less. Some major franchisees also grant satellite franchises in their respective areas.
It has always been the policy of the Company to grant tax return preparation franchises to qualified persons without an initial franchise fee; however, the policy of Tax Services is to require a deposit to secure compliance with franchise contracts. The deposit fund as of April 30, 1994, amounted to $2,378,000.
SEASONALITY OF BUSINESS. Since most of the customers of Tax Services file their tax returns during the period from January through April of each year, substantially all of Tax Services' revenues from income tax return preparation, related services and franchise royalties are received during this period. As a result, Tax Services operates at a loss through the first nine months of its fiscal year. Historically, such losses primarily reflect payroll of year-round personnel, training of income tax preparers, rental and furnishing of tax offices, and other costs and expenses relating to preparation for the following tax season.
SERVICE MARKS AND TRADEMARKS. HRB Royalty, Inc., a Delaware corporation and a wholly-owned subsidiary of Tax Services, owns the following service marks registered on the principal register of the United States Patent Office:
H&R Block in Two Distinct Designs The Income Tax People H&R Block Income Tax and Design Income Tax Saver Executive (when used in connection with the preparation of income tax returns for others) Rapid Refund H&R Block and Design
Tax Services has a license to use the trade names and service marks of HRB Royalty, Inc., in the conduct of the business of Tax Services.
In addition, HRB Royalty, Inc., owns the following unregistered service marks and trademarks:
America's Largest Tax Service Nation's Largest Tax Service
COMPETITIVE CONDITIONS. The tax return preparation and electronic filing business is highly competitive. Tax Services considers its primary source of tax return preparation competition to be the individual who prepares his own tax return.
In addition, there are substantial numbers of tax return prepara- tion firms. Many of these firms and many firms not otherwise in the tax return preparation business are involved in providing electronic filing and refund anticipation loan services to the public. Commercial tax return preparers and electronic filers are highly competitive with regard to price, service and reputation for quality. Tax Services believes that in terms of the number of offices and tax returns prepared it is the largest tax return preparation firm in the United States. Tax Services also believes that in terms of the number of offices and tax returns electronically filed in fiscal year 1994, it is the largest provider of electronic filing services in the United States.
COMPUSERVE INCORPORATED ("COMPUSERVE")
GENERALLY. CompuServe, the Company's information services and computer communications subsidiary based in Columbus, Ohio, operates through three divisions - Information Services, Network Services and Support Services. CompuServe became a wholly-owned subsidiary of the Company in May 1980 and is presently a wholly- owned subsidiary of H&R Block Group, Inc. From its origins as a computer time-sharing firm, CompuServe has become a leading provider of computer-based information and communications services to businesses and individual owners of personal computers. CompuServe's highly sophisticated and efficient telecommunications network links CompuServe subscribers and system users to each other, to CompuServe's central computer facilities or to other computer centers and data bases distributed across the country and around the world. As of April 30, 1994, CompuServe's telecommunications network extended to 349 metropolitan local access points in the United States, covering all major metropolitan areas and many rural locations. Through the use of supplementary and other networks, CompuServe provides network coverage in the United States and in approximately 100 foreign countries which have public networks. CompuServe has also established local dial access points in more than 140 cities in ten countries.
CompuServe's largest division is its Information Services Division. The CompuServe Information Service, the online service for personal computer owners, provides subscribers with access to data stored on mainframes and networked personal computers. CompuServe is one of the leading providers of information services to national and international markets. The total number of subscribers to CompuServe Information Services increased to more than 1.8 million personal computer owners worldwide at the end of fiscal year 1994, compared to approximately 1.3 million at the end of the previous year. Membership in 1994 grew by more than 100% in Europe to 100,000 subscribers, helped in part by a new office in Paris. Among the services accessible through CompuServe's information system are online shopping services, stock market brokerage services and airline reservation services. Customers can also play computer games, conduct research, send and receive messages and exchange helpful tips about computer use through special interest bulletin boards called "Forums" simply by connecting their personal computers to an ordinary telephone line.
Through its Information Services Division, CompuServe has also developed a wide range of business services that enable companies to link their employees with the information needed to conduct business. The services include electronic mail, internal corporate information systems for diverse applications, and a host of business-related databases. Electronic mail and other communications systems provided by CompuServe allow business users flexible, two-way access to information in operating areas such as sales, marketing, investment research and information management. Through the use of these systems, suppliers and customers are able to access information easily and securely through personal computers and computer terminals.
CompuServe's Network Services Division provides value-added packet data network, frame relay and local area network services to corporations and many other diverse organizations. The network offers these organizations an exceptionally fast and reliable data communications system which can be customized to meet their particular requirements. The number of clients of the Network Services Division totalled 586 at the end of fiscal year 1994, an increase from the 484 clients at the end of fiscal year 1993.
One of the many applications for which the CompuServe network is utilized by its customers relates to point-of-sale transactions. CompuServe is a leading provider of value-added telecommunications services for point-of-sale authorization of credit card purchases. Using the CompuServe network, a merchant can pass a customer's card through a computer terminal and determine almost instantly whether the card is valid.
In addition to providing technical support to all other divisions of CompuServe, the Support Services Division of CompuServe again in fiscal year 1994 lent its expertise to the income tax return preparation and related services segment of the Company in the nationwide operation of H&R Block Tax Services, Inc.'s electronic filing program. The system developed and implemented by the Support Services Division ensured fast, accurate, high-volume transmission and processing of tax return refund claims. The Support Services Division also developed the income tax return preparation software used in H&R Block offices nationwide during fiscal year 1994.
Fiscal year 1994 saw the introduction of CompuServe CD, the multimedia companion to the CompuServe Information Service that combines CD-ROM based information, applications, sound, graphics and video with CompuServe's online services.
Subsequent to the end of fiscal year 1994, CompuServe disposed of CompuServe Data Technologies, a division that marketed database management software, and Collier-Jackson, Inc., a subsidiary of CompuServe that marketed newspaper management and financial software.
SERVICE MARKS, TRADEMARKS, PATENTS OR COPYRIGHTS. CompuServe owns the following service marks registered on the principal register of the United States Patent Office:
CompuServe EasyPlex The Electronic Mall B+ Protocol Forum CB Simulator
In addition, CompuServe owns the following trademarks registered on the principal register of the United States Patent Office:
CompuServe Information Manager InfoPlex B Protocol WINCIM FRAME-Net
CompuServe also owns or claims numerous unregistered service marks or trademarks.
CompuServe presently holds no patents on its software programs. CompuServe is licensed by others to use various software programs and offers such programs to customers on a surcharge basis.
COMPETITIVE CONDITIONS. The online information and remote computer services businesses are highly competitive and consist of a large number of companies. The Company believes that, in terms of subscriber base, CompuServe is the largest provider of worldwide online information services. The remote computer services industry is highly fragmented and no single supplier can be considered to occupy a dominant position in the industry. CompuServe's Network Division continues to compete successfully with competitors who have larger sales and technical organizations than CompuServe.
BLOCK FINANCIAL CORPORATION ("BFC")
GENERALLY. Block Financial Corporation, a Delaware corporation and a subsidiary of H&R Block Group, Inc., was incorporated in May 1992 and such corporation, or a subsidiary thereof, is involved in investing in refund anticipation loans, offering H&R Block and CompuServe bank cards, leasing computer equipment to franchisees of H&R Block Tax Services, Inc. (or one of its subsidiaries), extending equity lines of credit to such franchisees, providing business insurance services to H&R Block Tax Services, Inc., its franchisees and other subsidiaries of the Company, and, through a captive insurance subsidiary, reinsuring certain Company risks and providing insurance coverages for third-party businesses.
BFC is a party to an agreement with Mellon Bank (DE) National Association ("Mellon") under which BFC purchases interests in a trust to which certain refund anticipation loans made by Mellon in the United States are sold. Mellon is one of the national banking institutions through which such loans are made to H&R Block electronic filing customers, as described in the section entitled "H&R Block Tax Services, Inc.," under "Electronic Filing." During fiscal year 1994, Mellon offered refund anticipation loans to customers of Tax Services and its franchisees in an area that included approximately one-half of the total of company-owned and satellite franchised offices in the United States. BFC purchased an interest of just under 50% in all refund anticipation loans made by Mellon during fiscal year 1994 at those tax offices in the Mellon territory. BFC's purchases were financed through short-term borrowing. BFC bears all of the risks associated with its interests in the refund anticipation loans.
Through Columbus Bank and Trust Company, Columbus, Georgia, BFC had issued in excess of 45,000 credit cards by the end of fiscal year 1994. The "H&R Block ValueCard" is designed for customers of H&R Block Tax Services, Inc., and the CompuServe Visa Card is designed for customers of CompuServe Incorporated. The cards currently feature a low annual fee, a market-based annual percentage rate of interest equivalent to the prime rate, plus 9.9%, and rebates for the services offered by Tax Services or CompuServe, as the case may be. BFC plans to introduce a value-added on-line transaction review service for customers with a CompuServe Visa Card.
In a program designed to help franchise owners automate their income tax return preparation operations in an economical manner, Franchise Partner, Inc., a subsidiary of BFC, offers direct finance capital leases to franchisees of either H&R Block Tax Services, Inc., or one of its subsidiary corporations in order to finance computer equipment. The leases offered are for terms of 24 or 36 months.
Franchise Partner, Inc., also offers to such franchisees equity lines of credit which must be used for purposes related to the operation of the franchise. A franchise equity line of credit is secured by the franchise itself. The program is designed to provide franchise owners with lines of credit with reasonable interest rates in order to better enable the franchisees to refinance existing business debt, expand or renovate offices or meet off-season cash flow needs. The minimum line of credit amount is generally $10,000 and the standard term for an equity line of credit is five years (with provisions for automatic extensions of such term). In most states during fiscal year 1994, draws against a line of credit were charged a variable monthly interest rate of the prime interest rate, plus one percent.
At the end of fiscal year 1994, the operations of the personal finance software (Managing Your Money (copyright)) portion of MECA Software, Inc., were combined with BFC. BFC intends to expand the market for such software beyond the consumer market to an integrated system designed to tie financial service companies to their customers.
COMPETITIVE CONDITIONS. The credit card, computer equipment leasing, lending and insurance businesses are highly competitive and consist of a large number of companies. No single supplier can be considered to occupy a dominant position in any of these businesses.
ITEM 2.
ITEM 2. PROPERTIES.
The executive offices of both the Company and H&R Block Tax Services, Inc., are located at 4410 Main Street, Kansas City, Missouri, in a three-story building owned by Tax Services which was constructed in 1963 and expanded in 1965, 1973 and 1981. Tax Services has acquired property adjacent to such building and an additional expansion is in the planning stages. Most other offices of Tax Services (except those in department stores) are operated in premises held under short-term leases providing fixed monthly rentals, usually with renewal options.
CompuServe's executive offices are located in an office complex in Columbus, Ohio, owned by CompuServe. CompuServe also owns and occupies two other buildings in the Columbus area and has broken ground on new facilities in the Columbus area (presently planned for occupancy in the third quarter of fiscal year 1996). In addition, CompuServe leases office space in three other buildings in the Columbus area and in a number of other locations in the United States and Europe. CompuServe owns SC30M computer systems purchased from Systems Concepts, Inc., and has assembled several SC-30 and SC-40 processors on-site via an agreement with such firm. CompuServe also owns central processors manufactured by Digital Equipment Corporation and located in its two computer centers. Due to the varying demands of different computer programs on the capabilities of the com- puter hardware, it is not possible to define a single measurement of the hardware capacity.
The executive offices of Block Financial Corporation are located in leased offices at 4435 Main Street, Kansas City, Missouri.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending by or against the Company or any of its subsidiaries.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended April 30, 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, each of whom has been elected to serve at the discretion of the Board of Directors of the Company, are:
Name and age Office(s) - - - - ---------------------- ------------------------------ Henry W. Bloch (71) Chairman of the Board since August 1989; Chief Executive Officer from 1974 through July 1992; President from 1962 through July 1989; Member of the Board of Directors since 1955.
Thomas M. Bloch (40) President since August 1989; Chief Executive Officer since August 1992; Chief Operating Officer from August 1989 through July 1992; Executive Vice President from August 1988 through July 1989; Member of the Board of Directors since 1983.
William F. Evans (46) Senior Vice President, Corporate Operations, since August 1992. See Note 1.
William P. Anderson (45) Vice President, Corporate Development, since December 1991; Chief Financial Officer since August 1992. See Note 2.
Robert L. Arnold (51) Vice President since February 1986; Director of Internal Audit since 1978.
Ozzie Wenich (51) Vice President, Corporate Con- troller and Treasurer since March 1994; Vice President and Corporate Controller from Sep- tember 1985 until March 1994.
Note 1: Mr. Evans was Executive Vice President and Chief Financial Officer of Dun & Bradstreet Software Services, Inc., Atlanta, Georgia, from 1990 through July 1992; and Executive Vice President and Chief Financial Officer of Management Science America, Inc., Atlanta, Georgia, from 1988 until 1990.
Note 2: Mr. Anderson was a partner in KPMG Peat Marwick, accounting firm, from 1984 until December 1991, in Atlanta, Georgia, serving in various capacities, including responsibility for the firm's national corporate finance consulting practice.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The information called for by this item is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1994, under the heading "Common Stock Data," and is hereby incorporated by reference. The Company's Common Stock is traded principally on the New York Stock Exchange. The Company's Common Stock is also traded on the Pacific Stock Exchange. On June 10, 1994, there were 35,485 stockholders of the Company.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this item is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1994, under the heading "Selected Financial Data," and is hereby incorporated by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information called for by this item is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1994, under the headings "Management's Discussion and Analysis of Results of Operations" and "Management's Discussion and Analysis of Liquidity and Capital Resources," and is hereby incorporated by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item and listed at Item 14(a)1 is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1994, and is hereby incorporated by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There has been no change in the registrant's accountants during the two most recent fiscal years or any subsequent interim time period.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1994, in the section titled "Election of Directors" and in Item 4a of Part I of this report, and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1994, in the section titled "Compensation of Executive Officers," and is incorporated herein by reference, except that information contained in such section under the subtitles "Performance Graphs" and "Compensation Committee Report" is not incorporated herein by reference and is not to be deemed "filed" as part of this filing.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1994, in the section titled "Election of Directors" and in the section titled "Information Regarding Security Holders," and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1994, in the section titled "Election of Directors," and in the section titled "Compensation of Executive Officers," and is incorporated herein by reference, except that information contained in the section titled "Compensation of Executive Officers" under the subtitles "Performance Graphs" and "Compensation Committee Report" is not incorporated herein by reference and is not deemed "filed" as part of this filing.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of H&R Block, Inc., and Subsidiaries are incorporated by reference to the Company's annual report to security holders for the year ended April 30, 1994:
Page
Consolidated Statements of Earnings 19 Consolidated Balance Sheets 20 Consolidated Statements of Cash Flows 21 Notes to Consolidated Financial Statements 22 Quarterly Financial Data 27 Independent Auditors' Report 29
2. FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule I - Marketable Securities - Other Security Investments
Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
Schedules not filed herewith are either not applicable, the information is not material or the information is set forth in the financial statements or notes thereto.
3. EXHIBITS
3(a) Restated Articles of Incorporation of H&R Block, Inc., as amended, filed as Exhibit 4(a) to the Com- pany's quarterly report on Form 10- Q for the quarter ended October 31, 1991, are incorporated herein by reference.
3(b) Bylaws of H&R Block, Inc., as amended, filed as Exhibit 4 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1989, are incorporated by reference.
4(a) Conformed copy of Rights Agreement dated as of July 14, 1988 between H&R Block, Inc., and Centerre Trust Company of St. Louis, filed on August 9, 1993 as Exhibit 4(c) to the Company's Registration Statement on Form S-8 (File No. 33- 67170), is incorporated herein by reference.
4(b) Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock of H&R Block, Inc., filed on August 9, 1989 as Exhibit 4(d) to the Company's Registration Statement on Form S-8 (File No. 33-30453), is incorporated by reference.
4(c) Copy of Amendment to Rights Agreement dated as of May 9, 1990 between H&R Block, Inc., and Boatmen's Trust Company, filed as Exhibit 4(c) to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1990, is incorporated herein by reference.
4(d) Copy of Second Amendment to Rights Agreement dated September 11, 1991 between H&R Block, Inc., and Boatmen's Trust Company, filed as Exhibit 4(b) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1991, is incorporated herein by reference.
10(a) The Company's 1984 Long-Term Executive Compensation Plan, as amended (terminated as of September 8, 1993, except with respect to awards then outstanding thereunder), filed as Exhibit 28(a) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1991, is incorporated herein by reference.
10(b) The Company's 1993 Long-Term Executive Compensation Plan, filed as Exhibit 10 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1993, is incorporated herein by reference.
10(c) The H&R Block Long-Term Performance Program, as amended.
10(d) The H&R Block Deferred Compensation Plan for Directors, as amended.
10(e) The H&R Block Deferred Compensation Plan for Executives, as amended.
10(f) The H&R Block Supplemental Deferred Compensation Plan for Executives.
10(g) The Amended and Restated H&R Block, Inc. Retirement Plan for Non- Employee Directors, filed as Exhibit 10(e) to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1989, is incorporated herein by reference.
10(h) The Company's 1989 Stock Option Plan for Outside Directors, as amended, filed as Exhibit 28(b) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1991, is incorporated herein by reference.
11 Statement re Computation of Per Share Earnings.
13 Those portions of the annual report to security holders for the fiscal year ended April 30, 1994 which are expressly incorporated by reference in this filing are filed as Exhibit 13 hereto.
21 Subsidiaries of the Company.
23 The consent of Deloitte & Touche, Certified Public Accountants, is located immediately after the signature pages contained in this filing.
(b) Reports on Form 8-K.
The Company did not file any current reports on Form 8-K during the fourth quarter of the year ended April 30, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there- unto duly authorized.
H&R BLOCK, INC.
June 22, 1994 By/s/ Thomas M. Bloch --------------------------- Thomas M. Bloch, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title - - - - ----------------------- -----------------------
/s/ Thomas M. Bloch President, Chief - - - - ----------------------- Executive Officer and Thomas M. Bloch Director (principal executive officer)
/s/ G. Kenneth Baum Director - - - - ----------------------- G. Kenneth Baum
/s/ Henry W. Bloch Director - - - - ----------------------- Henry W. Bloch
/s/ Robert E. Davis Director - - - - ----------------------- Robert E. Davis
/s/ Donna R. Ecton Director - - - - ----------------------- Donna R. Ecton
/s/ Henry F. Frigon Director - - - - ----------------------- Henry F. Frigon
/s/ Roger W. Hale Director - - - - ----------------------- Roger W. Hale
(Signed as to each on June 22, 1994)
Signature Title - - - - -------------------------- -------------------------
/s/ Marvin L. Rich Director - - - - -------------------------- Marvin L. Rich
/s/ Frank L. Salizzoni Director - - - - -------------------------- Frank L. Salizzoni
/s/ Morton I. Sosland Director - - - - -------------------------- Morton I. Sosland
/s/ William P. Anderson Vice President, Corporate - - - - -------------------------- Development and Chief William P. Anderson Financial Officer (principal financial officer)
/s/ Ozzie Wenich Vice President, Corporate - - - - -------------------------- Controller and Treasurer Ozzie Wenich (principal accounting officer)
(Signed as to each on June 22, 1994)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 4 to Registration Statement No. 33-185 of H&R Block, Inc. and subsidiaries (relating to shares of Common Stock issued under the 1984 Long-Term Executive Compensation Plan) on Form S-8 and Registration Statement No. 33-33889 of H&R Block, Inc. and subsidiaries (relating to shares of Common Stock issuable under the 1989 Stock Option Plan for Outside Directors) on Form S-8 of our reports dated June 21, 1994, appearing in and incorporated by reference in this Annual Report on Form 10-K of H&R Block, Inc. and subsidiaries for the year ended April 30, 1994.
/s/Deloitte & Touche
Kansas City, Missouri July 28, 1994
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders H&R Block, Inc. Kansas City, Missouri
We have audited the consolidated financial statements of H&R Block, Inc. and subsidiaries as of April 30, 1994 and 1993 and for each of the three years in the period ended April 30, 1994, and have issued our report thereon dated June 21, 1994; such consolidated financial statements and report are included in your 1994 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedules of H&R Block, Inc. and subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche
Kansas City, Missouri June 21, 1994