CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Thousands | Jan. 31, 2010
| Apr. 30, 2009
|
Assets | ||
Cash and cash equivalents | $1,727,677 | $1,654,663 |
Cash and cash equivalents - restricted | 85,313 | 51,656 |
Receivables, less allowance for doubtful accounts of $86,853 and $128,541 | 2,566,830 | 512,814 |
Prepaid expenses and other current assets | 344,922 | 351,947 |
Total current assets | 4,724,742 | 2,571,080 |
Mortgage loans held for investment, less allowance for loan losses of $97,269 and $84,073 | 641,157 | 744,899 |
Property and equipment, at cost, less accumulated depreciation and amortization of $653,866 and $625,075 | 362,170 | 368,289 |
Intangible assets, net | 371,951 | 385,998 |
Goodwill | 843,054 | 850,230 |
Other assets | 467,055 | 439,226 |
Total assets | 7,410,129 | 5,359,722 |
Liabilities: | ||
Short-term borrowings | 1,675,094 | |
Customer banking deposits | 2,220,501 | 854,888 |
Accounts payable, accrued expenses and other current liabilities | 756,501 | 705,945 |
Accrued salaries, wages and payroll taxes | 182,151 | 259,698 |
Accrued income taxes | 118,079 | 543,967 |
Current portion of long-term debt | 2,576 | 8,782 |
Current Federal Home Loan Bank borrowings | 25,000 | 25,000 |
Total current liabilities | 4,979,902 | 2,398,280 |
Long-term debt | 1,032,800 | 1,032,122 |
Long-term Federal Home Loan Bank borrowings | 75,000 | 75,000 |
Other noncurrent liabilities | 385,960 | 448,461 |
Total liabilities | 6,473,662 | 3,953,863 |
Stockholders equity: | ||
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, shares issued of 437,352,210 and 444,176,510 | 4,374 | 4,442 |
Additional paid-in capital | 826,503 | 836,477 |
Accumulated other comprehensive income (loss) | 1,086 | (11,639) |
Retained earnings | 2,162,406 | 2,671,437 |
Less treasury shares, at cost | (2,057,902) | (2,094,858) |
Total stockholders' equity | 936,467 | 1,405,859 |
Total liabilities and stockholders' equity | $7,410,129 | $5,359,722 |
1_CONDENSED CONSOLIDATED BALANC
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
In Thousands, except Share data | Jan. 31, 2010
| Apr. 30, 2009
|
Condensed Consolidated Balance Sheets (Parenthetical) | ||
Allowance for doubtful accounts | $86,853 | $128,541 |
Allowance for loan losses | 97,269 | 84,073 |
Accumulated depreciation and amortization | $653,866 | $625,075 |
Common stock,stated value per share | 0.01 | 0.01 |
Common stock, shares authorized | 800,000,000 | 800,000,000 |
Common stock, shares issued | 437,352,210 | 444,176,510 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS (USD $) | ||||
In Thousands, except Per Share data | 3 Months Ended
Jan. 31, 2010 | 3 Months Ended
Jan. 31, 2009 | 9 Months Ended
Jan. 31, 2010 | 9 Months Ended
Jan. 31, 2009 |
Revenues: | ||||
Service revenues | $744,327 | $799,687 | $1,287,270 | $1,356,744 |
Product and other revenues | 142,179 | 135,155 | 176,422 | 166,582 |
Interest income | 48,346 | 58,604 | 72,746 | 93,498 |
Total revenue | 934,852 | 993,446 | 1,536,438 | 1,616,824 |
Operating expenses: | ||||
Cost of revenues | 645,747 | 684,567 | 1,443,146 | 1,489,652 |
Selling, general and administrative | 194,661 | 208,814 | 427,563 | 464,054 |
Total operating expenses | 840,408 | 893,381 | 1,870,709 | 1,953,706 |
Operating income (loss) | 94,444 | 100,065 | (334,271) | (336,882) |
Other income (expense), net | 3,007 | 1,674 | 7,996 | (1,802) |
Income (loss) from continuing operations before taxes (benefit) | 97,451 | 101,739 | (326,275) | (338,684) |
Income taxes (benefit) | 43,848 | 34,909 | (122,789) | (143,930) |
Net income (loss) from continuing operations | 53,603 | 66,830 | (203,486) | (194,754) |
Net loss from discontinued operations | (2,968) | (19,467) | (8,100) | (26,476) |
Net income (loss) | 50,635 | 47,363 | (211,586) | (221,230) |
Basic earnings (loss) per share: | ||||
Net income (loss) from continuing operations | 0.16 | 0.2 | -0.61 | -0.59 |
Net loss from discontinued operations | -0.01 | -0.06 | -0.02 | -0.08 |
Net income (loss) | 0.15 | 0.14 | -0.63 | -0.67 |
Basic shares | 332,999 | 337,338 | 334,293 | 331,429 |
Diluted earnings (loss) per share: | ||||
Net income (loss) from continuing operations | 0.16 | 0.2 | -0.61 | -0.59 |
Net loss from discontinued operations | -0.01 | -0.06 | -0.02 | -0.08 |
Net income (loss) | 0.15 | 0.14 | -0.63 | -0.67 |
Diluted shares | 334,297 | 338,687 | 334,293 | 331,429 |
Dividends per share | 0.15 | 0.15 | 0.45 | 0.44 |
Comprehensive income (loss): | ||||
Net income (loss) | 50,635 | 47,363 | (211,586) | (221,230) |
Change in unrealized gain on available-for-sale securities, net | (464) | (1,707) | (882) | (4,271) |
Change in foreign currency translation adjustments | 1,484 | (3,671) | 13,607 | (14,829) |
Comprehensive income (loss) | $51,655 | $41,985 | ($198,861) | ($240,330) |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Thousands | 9 Months Ended
Jan. 31, 2010 | 9 Months Ended
Jan. 31, 2009 |
Statement of Cash Flows [Abstract] | ||
Net cash used in operating activities | ($2,729,047) | ($2,423,562) |
Cash flows from investing activities: | ||
Principal repayments on mortgage loans held for investment, net | 56,114 | 72,150 |
Purchases of property and equipment, net | (63,242) | (73,913) |
Payments made for business acquisitions, net of cash acquired | (10,828) | (290,868) |
Proceeds from sale of businesses, net | 66,760 | 11,556 |
Net cash provided by investing activities of discontinued operations | 255,066 | |
Other, net | 22,370 | 12,283 |
Net cash provided by (used in) investing activities | 71,174 | (13,726) |
Cash flows from financing activities: | ||
Repayments of Federal Home Loan Bank borrowings | (40,000) | |
Proceeds from Federal Home Loan Bank borrowings | 15,000 | |
Repayments of short-term borrowings | (982,774) | (888,983) |
Proceeds from short-term borrowings | 2,657,436 | 2,550,281 |
Customer banking deposits, net | 1,365,163 | 1,326,584 |
Dividends paid | (151,317) | (147,569) |
Repurchase of common stock, including shares surrendered | (154,201) | (7,387) |
Proceeds from exercise of stock options | 15,678 | 69,891 |
Proceeds from issuance of common stock, net | 141,450 | |
Net cash provided by financing activities of discontinued operations | 4,783 | |
Other, net | (29,434) | 17,544 |
Net cash provided by financing activities | 2,720,551 | 3,041,594 |
Effects of exchange rates on cash | 10,336 | |
Net increase in cash and cash equivalents | 73,014 | 604,306 |
Cash and cash equivalents at beginning of the period | 1,654,663 | 664,897 |
Cash and cash equivalents at end of the period | 1,727,677 | 1,269,203 |
Supplemental cash flow data: | ||
Income taxes paid (refunds received), net | 269,774 | (13,006) |
Interest paid on borrowings | 61,118 | 70,891 |
Interest paid on deposits | 8,654 | 11,484 |
Transfers of loans to foreclosed assets | $12,689 | $62,774 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | |
9 Months Ended
Jan. 31, 2010 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies Basis of Presentation The condensed consolidated balance sheet as of January31, 2010, the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended January31, 2010 and 2009, and the condensed consolidated statements of cash flows for the nine months ended January31, 2010 and 2009 have been prepared by the Company, without audit. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows at January31, 2010 and for all periods presented have been made. The accompanying condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries, but exclude the operations of variable interest entities of which we are not the primary beneficiary. See note2 for further discussion. Intercompany transactions and balances have been eliminated. HR Block, the Company, we, our and us are used interchangeably to refer to HR Block, Inc. or to HR Block, Inc. and its subsidiaries, as appropriate to the context. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. In addition, we realigned our segments as discussed in note14, and accordingly restated segment disclosures for prior periods. These changes had no effect on our results of operations or stockholders equity as previously reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April30, 2009 Annual Report to Shareholders on Form10-K. All amounts presented herein as of April30, 2009 or for the year then ended, are derived from our April30, 2009 Annual Report to Shareholders on Form10-K. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, assumptions and judgments are applied in the determination of our allowance for loan losses, potential losses from loan repurchase and indemnity obligations associated with our discontinued mortgage business, contingent losses associated with pending litigation, fair value of reporting units, reserves for uncertain tax positions and related matters. We revise our estimates when facts and circumstances dictate. However, future events and their effects cannot be determined with absolute certainty. As such, actual results could differ materially from those estimates. Seasonality of Business Our operating revenues are seasonal in nature with peak revenues occurring in th |
Recent Events
Recent Events | |
9 Months Ended
Jan. 31, 2010 | |
Recent Events [Abstract] | |
Recent Events | 2. Alternative Practice Structure with McGladrey Pullen LLP McGladrey Pullen LLP (MP) is a limited liability partnership, owned 100% by certified public accountants (CPAs), which provides attest services to middle market clients. Under state accountancy regulations, a firm cannot provide attest services unless it is majority owned and controlled by licensed CPAs. As such, RSM McGladrey, Inc. (RSM) is unable to provide attest services. Since 1999, RSM and MP have operated in what is known as an alternative practice structure (APS). Through the APS, RSM and MP are able to offer clients a full-range of attest and non-attest services in full compliance with applicable accountancy regulations. An administrative services agreement between RSM and MP obligates RSM to provide MP with administrative services, information technology, office space, non-professional staff, and other infrastructure in exchange for market rate fees from MP. RSM also provides MP, at market rates of interest, a working capital credit facility and additional term financing to make acquisitions. Borrowings under the working capital credit facility are limited to the lower of the value of their accounts receivable, work-in-process and fixed assets or $125million. MP is negotiating alternative financing that would replace both the working capital facility and term financing currently provided by RSM. On July21, 2009, MP provided 210days notice of its intent to terminate the administrative services agreement, resulting in termination of the APS unless revoked or modified prior to the expiration of the notice period. As a protective measure, on September15, 2009, RSM also provided notice of its intent to terminate the administrative services agreement. Effective February3, 2010, RSM and MP entered into new agreements, withdrawing their prior notices of termination. Pursuant to a Governance and Operations Agreement effective February3, 2010, RSM and MP agreed to be bound by a final award of an arbitration panel, dated as of November24, 2009, regarding the applicability and enforceability of certain restrictive covenants between the parties. In the event the APS were ever terminated, MP would generally be prohibited as a result of these restrictive covenants, from (1)engaging in businesses in which RSM operates in for 17months, (2)soliciting any business with clients or potential clients of RSM or any of its subsidiaries or affiliates for 29months, and (3)soliciting employees of RSM or any of its subsidiaries or affiliates for 24months; however MP may, until the termination of the APS, solicit RSM employees who are also employees or partners of MP. Although not required by the APS, all partners of MP, with the exception of MPs Managing Partner, are also managing directors employed by RSM. Approximately 86% of RSMs managing directors are also partners in MP. Certain other individuals are also employed by both MP and RSM. MP partners receive distributions from MP in their capacity as partners, as well as compensation from RSM in their capacity as managing directors. Distributions to MP partners are based on the profitability of MP and are not capped by this arrange |
Earnings
Earnings (Loss) Per Share and Stockholders' Equity | |
9 Months Ended
Jan. 31, 2010 | |
Earnings (Loss) Per Share and Stockholders' Equity [Abstract] | |
Earnings (Loss) Per Share and Stockholders' Equity | 3. Earnings (Loss) Per Share and Stockholders Equity Basic and diluted earnings (loss) per share is computed using the two-class method. See note15 for additional information on our adoption of the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period. The dilutive effect of potential common shares is included in diluted earnings per share except in those periods with a loss from continuing operations. Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 9.6million shares and 16.0million shares for the three months ended January31, 2010 and 2009, respectively, as the effect would be antidilutive. Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 16.8million shares and 20.2million shares for the nine months ended January31, 2010 and 2009, respectively, as the effect would be antidilutive due to the net loss from continuing operations during each period. The computations of basic and diluted loss per share from continuing operations are as follows: (in 000s, except per share amounts) Three Months Ended January31, Nine Months Ended January31, 2010 2009 2010 2009 Net income (loss) from continuing operations attributable to shareholders $ 53,603 $ 66,830 $ (203,486 ) $ (194,754 ) Amounts allocated to participating securities (nonvested shares) (203 ) (219 ) (530 ) (613 ) Net income (loss) from continuing operations attributable to common shareholders $ 53,400 $ 66,611 $ (204,016 ) $ (195,367 ) Basic weighted average common shares 332,999 337,338 334,293 331,429 Potential dilutive shares 1,298 1,349 - - Dilutive weighted average common shares 334,297 338,687 334,293 331,429 Earnings (loss) per share from continuing operations attributable to common shareholders: Basic $ 0.16 $ 0.20 $ (0.61 ) $ (0.59 ) Diluted 0.16 0.20 (0.61 ) (0.59 ) The weighted average shares outstanding for the three and nine months ended January31, 2010 totaled 333.0million and 334.3million, respectively, compared to 337.3million and 331.4million for the three and nine months ended January31, 2009, respectively. During the three months ended January31, 2010, we purchased and immediately retired 6.8million shares of our common stock at a cost of $150.0million. We may continue to repurchase and |
Receivables
Receivables | |
9 Months Ended
Jan. 31, 2010 | |
Receivables [Abstract] | |
Receivables | 4. Receivables Receivables consist of the following: (in 000s) As of January31, 2010 January31, 2009 April30, 2009 Participation in tax client loans $ 1,109,795 $ 1,122,347 $ 29,616 Emerald Advance lines of credit 667,859 688,663 64,029 Business Services receivables 324,085 335,893 322,636 Receivables for tax preparation and related fees 286,732 309,379 50,400 Royalties from franchisees 82,943 80,603 8,741 Loans to franchisees 70,706 66,317 48,831 Other 111,563 125,076 117,102 2,653,683 2,728,278 641,355 Allowance for doubtful accounts (86,853 ) (85,327 ) (128,541 ) $ 2,566,830 $ 2,642,951 $ 512,814 |
Mortgage Loans Held for Investm
Mortgage Loans Held for Investment and Related Assets | |
9 Months Ended
Jan. 31, 2010 | |
Mortgage Loans Held for Investment and Related Assets [Abstract] | |
Mortgage Loans Held for Investment and Related Assets | 5. Mortgage Loans Held for Investment and Related Assets The composition of our mortgage loan portfolio as of January31, 2010 and April30, 2009 is as follows: (dollars in 000s) As of January31, 2010 April30, 2009 Amount % of Total Amount % of Total Adjustable-rate loans $ 449,758 61 % $ 534,943 65 % Fixed-rate loans 283,040 39 % 286,894 35 % 732,798 100 % 821,837 100 % Unamortized deferred fees and costs 5,628 7,135 Less: Allowance for loan losses (97,269 ) (84,073 ) $ 641,157 $ 744,899 Activity in the allowance for loan losses for the nine months ended January31, 2010 and 2009 is as follows: (in 000s) Nine Months Ended January31, 2010 2009 Balance, beginning of the period $ 84,073 $ 45,401 Provision 36,050 51,953 Recoveries 38 50 Charge-offs (22,892 ) (21,789 ) Balance, end of the period $ 97,269 $ 75,615 Our loan loss reserve as a percent of mortgage loans was 13.27% at January31, 2010, compared to 10.23% at April30, 2009. In cases where we modify a loan and in so doing grant a concession to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (TDR). TDR loans totaled $153.4million and $160.7million at January31, 2010 and April30, 2009, respectively. The principal balance of impaired loans and real estate owned as of January31, 2010 and April30, 2009 is as follows: (in 000s) As of January31, 2010 April30, 2009 Impaired loans: 30 59days $ 894 $ - 60 89days 12,210 21,415 90+ days, non-accrual 162,391 121,685 TDR loans, accrual 103,894 60,044 TDR loans, non-accrual 49,538 100,697 328,927 303,841 Real estate owned(1) 31,511 44,533 Total non-performing assets $ 360,438 $ 348,374 (1) Includes loans accounted for as in-substance foreclosures of $16.4million and $27.4million at January31, 2010 and April30, 2009, respectively. Activity related to our real estate owned is as follows: (in 000s) Nine Months Ended January 31, 2010 2009 Balance, beginning of the period $ 44,533 $ 350 Additions 12,689 62,774 Sales (17,528 ) (5,506 ) Impairments (8,183 ) (5,699 ) Balance, end of the period $ 31,511 $ 51,919 |
Goodwill and Intangible Assets
Goodwill and Intangible Assets | |
9 Months Ended
Jan. 31, 2010 | |
Goodwill and Intangible Assets [Abstract] | |
Goodwill and Intangible Assets | 6. Goodwill and Intangible Assets Changes in the carrying amount of goodwill for the nine months ended January31, 2010 consist of the following: (in 000s) Tax Services Business Services Total Balance at April30, 2009: Goodwill $ 449,779 $ 402,639 $ 852,418 Accumulated impairment losses (2,188 ) - (2,188 ) 447,591 402,639 850,230 Changes: Acquisitions 9,378 - 9,378 Other (530 ) (1,024 ) (1,554 ) Impairments - (15,000 ) (15,000 ) Balance at January31, 2010: Goodwill 458,627 401,615 860,242 Accumulated impairment losses (2,188 ) (15,000 ) (17,188 ) $ 456,439 $ 386,615 $ 843,054 We test goodwill for impairment annually at the beginning of our fourth quarter, or more frequently if events occur which could, more likely than not, reduce the fair value of a reporting units net assets below its carrying value. RSM EquiCo, Inc. (RSM EquiCo) is a separate reporting unit within our Business Services segment with goodwill totaling approximately $29million. RSM EquiCo assists clients with capital markets transactions and has experienced declining revenues and profitability in the current economic environment. Accordingly, we evaluated RSM EquiCos goodwill for impairment at January31, 2010. The measurement of impairment of goodwill consists of two steps. In the first step, we compared the fair value of RSM EquiCo, determined using discounted cash flows, to its carrying value. As the results of the first test indicated that the fair value of RSM EquiCo was less than its carrying value, we then performed the second step, which was to determine the implied fair value of RSM EquiCos goodwill, and to compare that to its carrying value. The second step included hypothetically valuing all of the tangible and intangible assets of RSM EquiCo. As a result, we recorded an impairment of the reporting units goodwill of $15.0million during the three months ended January31, 2010, leaving a remaining goodwill balance of approximately $14million. The impairment is included in selling, general and administrative expenses on the condensed consolidated statements of operations. Intangible assets consist of the following: (in 000s) As of January31, 2010 April30, 2009 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net Tax Services: Customer relationships $ 65,544 $ (31,199 ) $ 34,345 $ 54,655 $ (25,267 ) $ 29,388 Noncompete agreements 22,875 (21,073 ) 1,802 23,263 (20,941 ) 2,322 Reacquired franchise rights 223,773 (5,021 ) 218,752 229,438 |
Borrowings
Borrowings | |
9 Months Ended
Jan. 31, 2010 | |
Borrowings [Abstract] | |
Borrowings | 7. Borrowings Borrowings consist of the following: (in 000s) As of January31, 2010 January31, 2009 April30, 2009 Short-term borrowings: Commercial paper $ 792,594 $ - $ - HSBC credit facility 882,500 690,485 - $ 1,675,094 $ 690,485 $ - Long-term borrowings: CLOC borrowings, due August 2010 $ - $ 970,813 $ - Senior Notes, 7.875%, due January 2013 599,633 599,507 599,539 Senior Notes, 5.125%, due October 2014 398,882 398,648 398,706 Other 36,861 42,709 42,659 1,035,376 2,011,677 1,040,904 Less: Current portion (2,576 ) (9,030 ) (8,782 ) $ 1,032,800 $ 2,002,647 $ 1,032,122 At January31, 2010, we maintained $1.95billion in revolving credit facilities to support commercial paper issuances and for general corporate purposes. These unsecured committed lines of credit (CLOCs) have a maturity date of August 2010 and an annual facility fee in a range of six to fifteen basis points per annum, based on our credit ratings. We had no balance outstanding under our CLOCs as of January31, 2010, as we resumed our commercial paper program. The CLOCs, among other things, require we maintain at least $650.0million of net worth on the last day of any fiscal quarter. We had net worth of $936.5million at January31, 2010. On March4, 2010, we entered into a new CLOC agreement to support commercial paper issuances and for general corporate purposes, which replaced the CLOCs discussed above. This new facility provides funding of up to $1.7billion and has a maturity date of July, 31 2013. This facility bears interest in a range of LIBOR plus 130 to 280basis points per annum on any drawn balances and an annual facility fee in a range of 20 to 70basis points per annum of committed amounts, based on our credit ratings. The covenants of the new agreement are substantially similar to the previous CLOCs, and continue to include that (1)we maintain at least $650.0million of net worth on the last day of any fiscal quarter and (2)we reduce the aggregate outstanding principal amount of short-term debt, as defined in the agreement, to $200.0million or less for thirty consecutive days during the period from March 1 to June 30 of each year (the Clean-down requirement). We entered into a committed line of credit agreement with HSBC Bank USA, National Association (HSBC) effective January12, 2010 for use as a funding source for the purchase of refund anticipation loan (RAL) participations. This line provides funding totaling $2.5billion through March30, 2010 and $120.0million thereafter through June30, 2010. This line is subject to various covenants that are similar to our primary CLOCs, and is secured by our RAL participations. At January31, 2010, there was $882.5million outstanding on this facility. HR Block Bank (HRB Bank) is a member of the Federal Home Loan Bank (FHLB) of Des Moines, which extends |
Income Taxes
Income Taxes | |
9 Months Ended
Jan. 31, 2010 | |
Income Taxes [Abstract] | |
Income Taxes | 8. Income Taxes We file a consolidated federal income tax return in the United States and file tax returns in various state and foreign jurisdictions. Consolidated tax returns for the years 1999 through 2007 are currently under examination by the Internal Revenue Service. Tax years prior to 1999 are closed by statute. Historically, tax returns in various foreign and state jurisdictions are examined and settled upon completion of the exam. During the nine months ended January31, 2010, we accrued additional gross interest and penalties of $5.6million related to our uncertain tax positions. We had gross unrecognized tax benefits of $124.8million and $124.6million at January31, 2010 and April30, 2009, respectively. The gross unrecognized tax benefits increased $0.2million in the current year, due primarily to interest accrual on positions related to prior years. Except as noted below, we have classified the liability for unrecognized tax benefits, including corresponding accrued interest, as long-term at January31, 2010, which is included in other noncurrent liabilities on the condensed consolidated balance sheets. Based upon the expiration of statutes of limitations, payments of tax and other factors in several jurisdictions, we believe it is reasonably possible that the total gross amount of reserves for previously unrecognized tax benefits may decrease by approximately $18.2million within twelve months of January31, 2010. This portion of our liability for unrecognized tax benefits has been classified as current and is included in accounts payable, accrued expenses and other current liabilities on the condensed consolidated balance sheets. |
Interest Income and Expense
Interest Income and Expense | |
9 Months Ended
Jan. 31, 2010 | |
Interest Income and Expense [Abstract] | |
Interest Income and Expense | 9. Interest Income and Expense The following table shows the components of operating interest income and expense of our continuing operations: (in 000s) Three Months Ended January31, Nine Months Ended January31, 2010 2009 2010 2009 Interest income: Mortgage loans $ 7,567 $ 11,131 $ 23,535 $ 36,494 Emerald Advance lines of credit 36,867 43,311 39,944 44,539 Other 3,912 4,162 9,267 12,465 $ 48,346 $ 58,604 $ 72,746 $ 93,498 Interest expense: Borrowings $ 19,617 $ 21,623 $ 57,088 $ 60,849 Deposits 3,340 3,719 7,673 11,646 FHLB advances 509 1,326 1,526 3,981 $ 23,466 $ 26,668 $ 66,287 $ 76,476 |
Fair Value
Fair Value | |
9 Months Ended
Jan. 31, 2010 | |
Fair Value [Abstract] | |
Fair Value | 10. Fair Value The following table presents for each hierarchy level the financial assets that are measured at fair value on both a recurring and non-recurring basis at January31, 2010: (dollars in 000s) Total Level 1 Level 2 Level 3 Recurring: Available-for-sale securities $ 40,956 $ - $ 40,956 $ - Non-recurring: Impaired mortgage loans held for investment 244,757 - - 244,757 $ 285,713 $ - $ 40,956 $ 244,757 As a percentage of total assets 3.9% -% 0.6% 3.3% There were no significant changes to the unobservable inputs used in determining the fair values of our level2 and level3 financial assets. The carrying amounts and estimated fair values of our financial instruments at January31, 2010 are as follows: (in 000s) Carrying Estimated Amount Fair Value Mortgage loans held for investment $ 641,157 $ 473,633 IRAs and other time deposits 747,831 747,148 Long-term debt 1,035,376 1,144,323 |
Regulatory Requirements
Regulatory Requirements | |
9 Months Ended
Jan. 31, 2010 | |
Regulatory Requirements [Abstract] | |
Regulatory Requirements | 11. Regulatory Requirements HRB Bank files its regulatory Thrift Financial Report (TFR) on a calendar quarter basis with the Office of Thrift Supervision (OTS). The following table sets forth HRB Banks regulatory capital requirements at December31, 2009, as calculated in the most recently filed TFR: (dollars in 000s) To Be Well Capitalized For Capital Adequacy Under Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio Total risk-based capital ratio(1) $ 374,952 33.7% $ 89,032 8.0% $ 111,290 10.0% Tier1 risk-based capital ratio(2) $ 360,715 32.4% N/A N/A $ 66,774 6.0% Tier1 capital ratio (leverage)(3) $ 360,715 16.4% $ 264,722 12.0% $ 110,301 5.0% Tangible equity ratio(4) $ 360,715 16.4% $ 33,090 1.5% N/A N/A (1) Total risk-based capital divided by risk-weighted assets. (2) Tier1 (core) capital less deduction for low-level recourse and residual interest divided by risk-weighted assets. (3) Tier1 (core) capital divided by adjusted total assets. (4) Tangible capital divided by tangible assets. Block Financial LLC (BFC) typically makes capital contributions to HRB Bank to help it meet its capital requirements. BFC made capital contributions to HRB Bank of $235.0million during the nine months ended January31, 2010, and $245.0million during the fiscal year ended April30, 2009. As of January31, 2010, HRB Banks leverage ratio was 13.7%. |
Commitments and Contingencies
Commitments and Contingencies | |
9 Months Ended
Jan. 31, 2010 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies | 12. Commitments and Contingencies Changes in deferred revenue balances related to our Peace of Mind (POM) program, the current portion of which is included in accounts payable, accrued expenses and other current liabilities and the long-term portion of which is included in other noncurrent liabilities in the condensed consolidated balance sheets, are as follows: (in 000s) Nine Months Ended January 31, 2010 2009 Balance, beginning of period $ 146,807 $ 140,583 Amounts deferred for new guarantees issued 21,139 23,480 Revenue recognized on previous deferrals (58,122) (56,375) Balance, end of period $ 109,824 $ 107,688 The following table summarizes certain of our other contractual obligations and commitments: (in 000s) As of January31, 2010 April30, 2009 Franchise Equity Lines of Credit undrawn commitment $ 20,629 $ 38,055 Contingent business acquisition obligations 25,990 24,165 Media advertising purchase obligation 39,865 45,768 We routinely enter into contracts that include embedded indemnifications that have characteristics similar to guarantees. Guarantees and indemnifications of the Company and its subsidiaries include obligations to protect counterparties from losses arising from the following: (1)tax, legal and other risks related to the purchase or disposition of businesses; (2)penalties and interest assessed by federal and state taxing authorities in connection with tax returns prepared for clients; (3)indemnification of our directors and officers; and (4)third-party claims relating to various arrangements in the normal course of business. Typically, there is no stated maximum payment related to these indemnifications, and the terms of the indemnities may vary and in many cases are limited only by the applicable statute of limitations. The likelihood of any claims being asserted against us and the ultimate liability related to any such claims, if any, is difficult to predict. While we cannot provide assurance we will ultimately prevail in the event any such claims are asserted, we believe the fair value of guarantees and indemnifications relating to our continuing operations is not material as of January31, 2010. Discontinued Operations Sand Canyon Corporation (SCC) maintains recourse with respect to loans previously sold or securitized under indemnification of loss provisions relating to breach of representations and warranties made to purchasers or insurers. At January31, 2010 and April30, 2009, our loan repurchase reserve totaled $198.3million and $206.6million, respectively. This liability is included in accounts payable, accrued expenses and other current liabilities on our condensed consolidated balance sheets. |
Litigation and Related Continge
Litigation and Related Contingencies | |
9 Months Ended
Jan. 31, 2010 | |
Litigation and Related Contingencies [Abstract] | |
Litigation and Related Contingencies | 13. Litigation and Related Contingencies We are party to investigations, legal claims and lawsuits arising out of our business operations. As required, we accrue our best estimate of loss contingencies when we believe a loss is probable and we can reasonably estimate the amount of any such loss. Amounts accrued, including obligations under indemnifications, totaled $31.6million and $27.9million at January31, 2010 and April30, 2009, respectively. Litigation is inherently unpredictable and it is difficult to predict the outcome of particular matters with reasonable certainty and, therefore, the actual amount of any loss may prove to be larger or smaller than the amounts reflected in our consolidated financial statements. RAL Litigation We have been named as a defendant in numerous lawsuits throughout the country regarding our refund anticipation loan programs (collectively, RAL Cases). The RAL Cases have involved a variety of legal theories asserted by plaintiffs. These theories include allegations that, among other things: disclosures in the RAL applications were inadequate, misleading and untimely; the RAL interest rates were usurious and unconscionable; we did not disclose that we would receive part of the finance charges paid by the customer for such loans; untrue, misleading or deceptive statements in marketing RALs; breach of state laws on credit service organizations; breach of contract, unjust enrichment, unfair and deceptive acts or practices; violations of the federal Racketeer Influenced and Corrupt Organizations Act; violations of the federal Fair Debt Collection Practices Act and unfair competition regarding debt collection activities; and that we owe, and breached, a fiduciary duty to our customers in connection with the RAL program. The amounts claimed in the RAL Cases have been very substantial in some instances, with one settlement resulting in a pretax expense of $43.5million in fiscal year 2003 (the Texas RAL Settlement) and other settlements resulting in a combined pretax expense in fiscal year 2006 of $70.2million. We have settled all but one of the RAL Cases. The sole remaining RAL Case is a putative class action entitled Sandra J. Basile, et al.v. HR Block, Inc., et al., April Term 1992 Civil Action No.3246 in the Court of Common Pleas, First Judicial District Court of Pennsylvania, Philadelphia County, instituted on April23, 1993. The plaintiffs seek unspecified actual and punitive damages, injunctive relief, attorneys fees and costs. A Pennsylvania class was certified, but later decertified by the trial court in December 2003. The trial courts decertification decision is currently on appeal. We believe we have meritorious defenses to this case and intend to defend it vigorously. There can be no assurances, however, as to the outcome of this case or its impact on our consolidated results of operations. Peace of Mind Litigation We are defendants in lawsuits regarding our Peace of Mind program (collectively, the POM Cases), under which our applicable tax return preparation subsidiary assumes liability for additional tax assessments attributable to tax return preparation error. The POM Cases are de |
Segment Information
Segment Information | |
9 Months Ended
Jan. 31, 2010 | |
Segment Information [Abstract] | |
Segment Information | 14. Segment Information Results of our continuing operations by reportable operating segment are as follows: (in 000s) Three Months Ended January31, Nine Months Ended January31, 2010 2009 2010 2009 Revenues: Tax Services $ 747,685 $ 796,866 $ 944,953 $ 983,300 Business Services 178,482 185,177 562,702 592,873 Corporate 8,685 11,403 28,783 40,651 $ 934,852 $ 993,446 $ 1,536,438 $ 1,616,824 Pretax income (loss): Tax Services $ 131,189 $ 133,473 $ (212,973 ) $ (218,309 ) Business Services (11,222 ) 10,695 (9,727 ) 23,481 Corporate (22,516 ) (42,429 ) (103,575 ) (143,856 ) Income (loss) from continuing operations before income taxes $ 97,451 $ 101,739 $ (326,275 ) $ (338,684 ) Effective May1, 2009, we realigned certain segments of our business to reflect a new management reporting structure. The operations of HRB Bank, which was previously reported as the Consumer Financial Services segment, have now been reclassified, with activities that support our retail tax network included in the Tax Services segment, and the net interest margin and gains and losses relating to our portfolio of mortgage loans held for investment and related assets included in corporate. Presentation of prior period results reflects the new segment reporting structure. These segment changes also resulted in the reclassification of assets between segments. Identifiable assets by reportable segment at January31, 2010 are as follows: (in 000s) Tax Services $ 5,187,631 Business Services 835,074 Corporate 1,387,424 $ 7,410,129 |
Accounting Pronouncements
Accounting Pronouncements | |
9 Months Ended
Jan. 31, 2010 | |
Accounting Pronouncements [Abstract] | |
Accounting Pronouncements | 15. Accounting Pronouncements In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements (ASU 2009-13). This guidance amends the criteria for separating consideration in multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (1)vendor-specific objective evidence; (2)third-party evidence; or (3)estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendors multiple-deliverable revenue arrangements. This guidance is effective prospectively for revenue arrangements entered into or materially modified beginning with our fiscal year 2012. We are currently evaluating the effect of this guidance on our consolidated financial statements. In June 2009, the FASB issued guidance, under Topic 810 Consolidation. This guidance changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entitys purpose and design and the reporting entitys ability to direct the activities of the other entity that most significantly impact the other entitys economic performance. This guidance will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement, and will be effective for our fiscal year 2011. We are currently evaluating the effect of this guidance on our consolidated financial statements. In June 2009, the FASB issued guidance, under Topic 860 Transfers and Servicing. This guidance will require more disclosure about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a qualifying special purpose entity and changes the requirements for derecognizing financial assets. This guidance will be effective at the beginning of our fiscal year 2011. We are currently evaluating the effect of this guidance on our consolidated financial statements. In December 2007, the FASB issued guidance, under Topic 805 Business Combinations, requiring an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction, including non-controlling interests, at the acquisition-date fair value with limited exceptions. This guidance will require acquisition-related expenses to be expensed and will generally require contingent consideration to be recorded as a lia |
Condensed Consolidating Financi
Condensed Consolidating Financial Statements | |
9 Months Ended
Jan. 31, 2010 | |
Condensed Consolidating Financial Statements [Abstract] | |
Condensed Consolidating Financial Statements | 16. Condensed Consolidating Financial Statements BFC is an indirect, wholly-owned consolidated subsidiary of the Company. BFC is the Issuer and the Company is the Guarantor of the Senior Notes issued on January11, 2008 and October26, 2004, our CLOCs and other indebtedness issued from time to time. These condensed consolidating financial statements have been prepared using the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the Companys investment in subsidiaries account. The elimination entries eliminate investments in subsidiaries, related stockholders equity and other intercompany balances and transactions. Condensed Consolidating Income Statements (in 000s) Three Months Ended HR Block, Inc. BFC Other Consolidated January31, 2010 (Guarantor) (Issuer) Subsidiaries Elims HR Block Total revenues $ - $ 83,291 $ 851,581 $ (20 ) $ 934,852 Cost of revenues - 86,020 559,799 (72 ) 645,747 Selling, general and administrative - 2,881 191,800 (20 ) 194,661 Total expenses - 88,901 751,599 (92 ) 840,408 Operating income (loss) - (5,610 ) 99,982 72 94,444 Other income (expense), net 97,451 (1,609 ) 4,688 (97,523 ) 3,007 Income (loss) from continuing operations before taxes (benefit) 97,451 (7,219 ) 104,670 (97,451 ) 97,451 Income taxes (benefit) 43,848 (2,721 ) 46,569 (43,848 ) 43,848 Net income (loss) from continuing operations 53,603 (4,498 ) 58,101 (53,603 ) 53,603 Net loss from discontinued operations (2,968 ) (2,968 ) - 2,968 (2,968 ) Net income (loss) $ 50,635 $ (7,466 ) $ 58,101 $ (50,635 ) $ 50,635 Three Months Ended HR Block, Inc. BFC Other Consolidated January31, 2009 (Guarantor) (Issuer) Subsidiaries Elims HR Block Total revenues $ - $ 85,044 $ 908,466 $ (64 ) $ 993,446 Cost of revenues - 79,743 604,819 5 684,567 Selling, general and administrative - 44,125 164,791 (102 ) 208,814 Total expenses - 123,868 769,610 (97 ) 893,381 Operating income (loss) - (38,824 ) 138,856 33 100,065 Other income (expense), net 101,739 (1,968 ) 3,610 (101,707 ) 1,674 Income (loss) from continuing operations before taxes (benefit) 101,739 (40,792 ) 142,466 (101,674 ) 101,739 |
Document and Entity Information
Document and Entity Information | ||
9 Months Ended
Jan. 31, 2010 | Feb. 28, 2010
| |
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-01-31 | |
Entity Registrant Name | H&R BLOCK INC | |
Entity Central Index Key | 0000012659 | |
Current Fiscal Year End Date | --04-30 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 329,233,821 |