SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-6089
H&R BLOCK, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 44-0607856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4410 Main Street
Kansas City, Missouri 64111
(Address of principal executive offices, including zip code)
(816) 753-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock, without par
value, at December 5, 1994 was 105,596,045 shares.
TABLE OF CONTENTS
PART I Financial Information
Consolidated Balance Sheets
October 31, 1994 (Unaudited) and
April 30, 1994 (Audited)
Consolidated Statements of Operations
Three Months Ended October 31, 1994 and 1993 (Unaudited)
Six Months Ended October 31, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows
Six Months Ended October 31, 1994 and 1993 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
SIGNATURES
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except share amounts
October 31, April 30,
1994 1994
(Unaudited) (Audited)
ASSETS ------------- -------------
CURRENT ASSETS
Cash (including certificates of deposit of $18,299 and $23,519) $ 34,191 $ 41,343
Marketable securities 278,924 473,043
Receivables, less allowance for doubtful accounts of $13,042 and $12,744 163,375 165,858
Prepaid expenses 35,539 19,551
------------- -------------
TOTAL CURRENT ASSETS 512,029 699,795
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 103,895 105,705
Excess of cost over fair value of net tangible assets acquired,
net of amortization 65,495 67,679
Other 39,691 36,301
------------- -------------
209,081 209,685
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 179,954 165,224
------------- -------------
$ 901,064 $ 1,074,704
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 63,750 $ -
Accounts payable, accrued expenses and deposits 123,867 160,592
Accrued salaries, wages and payroll taxes 16,381 55,195
Accrued taxes on income 43,788 120,425
------------- -------------
TOTAL CURRENT LIABILITIES 247,786 336,212
OTHER NONCURRENT LIABILITIES 37,619 30,617
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Additional paid-in capital 87,501 90,552
Retained earnings 657,866 719,724
------------- -------------
746,456 811,365
Less cost of 3,407,082 and 2,823,605 shares of common stock in treasury 130,797 103,490
------------- -------------
615,659 707,875
------------- -------------
$ 901,064 $ 1,074,704
============= =============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share amounts
Three Months Ended
October 31,
1994 1993
------------ ------------
REVENUES
Service revenues $ 163,404 $ 123,508
Franchise royalties 3,442 3,103
Investment income 4,554 3,464
Other income 1,457 1,131
------------ ------------
172,857 131,206
------------ ------------
EXPENSES
Employee compensation and benefits 49,908 41,948
Occupancy and equipment 64,072 51,647
Marketing and advertising 13,880 9,367
Supplies, freight and postage 10,878 9,562
Other 36,148 26,549
------------ ------------
174,886 139,073
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAX BENEFIT (2,029) (7,867)
Income tax benefit (777) (3,694)
------------ ------------
Net loss from continuing operations (1,252) (4,173)
Net earnings from discontinued operations (less applicable
income taxes of $3,104) - 3,241
------------ ------------
NET LOSS $ (1,252) $ (932)
============ ============
Weighted average number of common shares outstanding 105,000 105,677
======= =======
LOSS PER SHARE
From continuing operations $ (.01) $ (.04)
============ ============
Net loss $ (.01) $ (.01)
============ ============
Dividends per share $ .3125 $ .28
============ ============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share amounts
Six Months Ended
October 31,
1994 1993
------------ ------------
REVENUES
Service revenues $ 299,123 $ 221,099
Franchise royalties 4,629 4,174
Investment income 9,705 7,531
Other income 4,800 1,716
------------ ------------
318,257 234,520
------------ ------------
EXPENSES
Employee compensation and benefits 94,902 78,844
Occupancy and equipment 124,982 99,916
Marketing and advertising 20,323 13,756
Supplies, freight and postage 17,558 14,876
Other 67,318 49,370
------------ ------------
325,083 256,762
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAX BENEFIT (6,826) (22,242)
Income tax benefit (2,614) (9,826)
------------ ------------
Net loss from continuing operations (4,212) (12,416)
Net earnings from discontinued operations (less applicable
income taxes of $5,786) - 6,043
------------ ------------
NET LOSS $ (4,212) $ (6,373)
============ ============
Weighted average number of common shares outstanding 105,063 105,730
======= =======
LOSS PER SHARE
From continuing operations $ (.04) $ (.12)
Net loss ============ ============
$ (.04) $ (.06)
============ ============
Dividends per share $ .5925 $ .53
============ ============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
Six Months Ended
October 31,
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,212) $ (6,373)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 31,481 25,909
Gain on sale of subsidiaries (2,796) -
Other noncurrent liabilities 7,002 3,649
Changes in:
Receivables 2,483 99,991
Prepaid expenses (15,988) (13,637)
Net assets of discontinued operations - (14,144)
Accounts payable, accrued expenses and deposits (36,725) (23,334)
Accrued salaries, wages and payroll taxes (38,814) (25,711)
Accrued taxes on income (78,033) (68,187)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (135,602) (21,837)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (843,724) (431,375)
Maturities of marketable securities 1,043,297 608,473
Purchases of property and equipment (44,167) (33,223)
Excess of cost over fair value of net tangible assets acquired (2,150) (3,820)
Other, net 4,750 (17,842)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 158,006 122,213
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (749,612) (80,661)
Proceeds from issuance of notes payable 813,362 46,500
Dividends paid (62,948) (56,707)
Payments to acquire treasury shares (83,112) (53,944)
Proceeds from stock options exercised 52,754 40,813
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (29,556) (103,999)
------------ ------------
Net decrease in cash (7,152) (3,623)
Cash at beginning of period 41,343 43,417
------------ ------------
Cash at end of period $ 34,191 $ 39,794
============ ============
Supplemental disclosures of cash flow information
Income taxes paid $ 74,023 $ 64,147
Interest paid 1,185 430
<FN>
See Notes to Consolidated Financial Statements.
</FN>
H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. The Consolidated Balance Sheet as of October 31, 1994, the Consolidated
Statements of Operations for the three and six months ended October 31,
1994 and 1993, and the Consolidated Statements of Cash Flows for the six
months ended October 31, 1994 and 1993 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at October
31, 1994 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 consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's April 30, 1994
Annual Report to Shareholders.
Operating revenues are seasonal in nature with peak revenues occurring in
the months January through April. Thus, the six month results are not
indicative of results to be expected for the year.
2. During the third quarter of fiscal 1994, the Company sold 100% of the
common stock of its wholly-owned subsidiary, Interim Services Inc. Prior
year amounts include Interim's results, reported as discontinued
operations. The Company acquired MECA Software, Inc. (now Block
Financial Software, Inc.) in November 1993. The acquisition was
accounted for as a purchase and, accordingly, the Consolidated Statements
of Operations include MECA's results since the date of acquisition.
3. In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This Standard addresses the
reporting for debt and equity securities by requiring such investments to
be classified in held-to-maturity, available-for-sale or trading
categories. The Company adopted this Standard on May 1, 1994. All
marketable debt and equity securities have been classified as current or
noncurrent available-for-sale securities, and are carried at market value
with unrealized gains and losses included in stockholders' equity. The
adoption of this Standard resulted in an increase to stockholders' equity
of $5,526,000 (net of taxes of $3,431,000), representing the aggregate
excess market value over carrying value of the Company's securities on
the date of adoption. During the six months ended October 31, 1994, the
net unrealized holding gain on available-for-sale securities decreased
$3,278,000 to $2,248,000. Net earnings for the period were not affected
by the accounting change.
4. The Company files its Federal and state income tax returns on a calendar
year basis. The Consolidated Statements of Operations reflect the
effective tax rates expected to be applicable for the respective full
fiscal years.
5. Net loss per common share is based on the weighted average number of
shares outstanding during each period. The weighted average shares
outstanding for the six months ended October 31, 1994 declined to
105,063,000 from 105,730,000 last year, due to repurchase of outstanding
shares, offset by the issuance of treasury shares for stock option
exercises.
6. During the six months ended October 31, 1994 and 1993, the Company issued
1,452,473 and 1,310,482 shares, respectively, pursuant to provisions for
exercise of its stock option plans; during the same periods, the Company
acquired 2,041,500 and 1,505,116 shares of its common stock at an
aggregate cost of $83,112,000 and $53,944,000, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
These comments should be read in conjunction with the Consolidated Balance
Sheets and Consolidated Statements of Cash Flows found on pages 3 and 6,
respectively.
Working capital decreased from $363.6 million at April 30, 1994 to $264.2
million at October 31, 1994. The working capital ratio at October 31, 1994
and April 30, 1994 was 2.1 to 1. The decrease in working capital must be
viewed in the context of the Company's business which is seasonal, with peak
activity in the fourth quarter, due to the nature of the Company's largest
segment, Tax Services. Tax return preparation occurs almost entirely in the
fourth quarter and has the effect of increasing certain assets and liabilities
during this time.
The Company has no long-term debt. However, the Company maintains seasonal
lines of credit to support short-term borrowing facilities in the United
States and Canada. During the months of January through April, the Company's
Canadian Tax Services regularly incurs short-term borrowings to purchase
refunds due its clients. Additionally, Block Financial Corporation (BFC), a
wholly-owned subsidiary of the Company, incurs short-term borrowings
throughout the year to fund receivables associated with its credit card
program. At October 31, 1994, short-term borrowings used to fund credit card
receivables totaled $63.8 million. There were no borrowings outstanding at
April 30, 1994. The Company also maintains a year-round $100 million line of
credit to support various financial activities conducted by BFC.
The Company's acquisition of treasury shares, capital expenditures and
dividend payments during the first six months were funded through internally-
generated funds.
On October 26, 1994, the Internal Revenue Service announced that, as a result
of concerns relating to fraudulent tax refund claims by taxpayers, it was
eliminating the Direct Deposit Indicator (DDI) beginning with the upcoming
1995 tax season. Previously, the IRS used the DDI to notify the electronic
filer after receiving a taxpayer's electronically filed tax return that the
direct deposit of the refund would be honored. The DDI was a key element of
the Refund Anticipation Loan (RAL) program because it helped control the risk
of loan losses and thus encouraged participating financial institutions to
make RALs under relatively favorable terms to taxpayers. In response to the
IRS's decision, the Company has amended its RAL agreement with Beneficial.
Beginning in the 1995 tax season, all Block company-owned offices will
offer the Beneficial RAL products, and most of its franchised offices are
expected to also offer RALs through Beneficial. Previously, Beneficial served
about 40% of H&R Block's company-owned offices, in addition to many of its
franchises. As a result of the IRS's decision, more traditional credit
underwriting methods will be used by Beneficial to determine eligibility of
RAL customers and the price of most RALs will rise significantly. A higher
price and more limited availability should affect the number of RAL customers
served in 1995, but the extent of the effect can not be estimated with any
assurance. However, the Company continues to believe that the earnings of
H&R Block Tax Services, Inc. will decline in fiscal 1995 from last year.
Additionally, Block Financial Corporation (BFC) will not participate in RALs
made during the 1995 tax season. Consequently, BFC, which contributed $8.7
million to consolidated pretax earnings last year, will likely report a loss
resulting from its other operations and start-up businesses. It is not
possible, at this time, to quantify the overall impact of such changes on
consolidated earnings.
RESULTS OF OPERATIONS
During the third quarter of fiscal 1994, the Company sold 100% of the common
stock of its wholly-owned subsidiary, Interim Services Inc. Prior amounts
include Interim's results, reported as discontinued operations. The results
of Interim Services Inc. were previously reflected as the Temporary Help
Services segment.
The Company acquired MECA Software, Inc. in November 1994. The transaction
was accounted for as a purchase and, accordingly, results include MECA's
operations subsequent to the date of acquisition. The personal finance
software operations of MECA Software, Inc. (now Block Financial Software,
Inc.) are included in the Financial Services segment; the personal tax
software operations of Legal Knowledge Systems, Inc., formerly a subsidiary
of MECA, are reported as Other Services.
The analysis that follows should be read in conjunction with the table below
and the Consolidated Statements of Operations found on pages 4 and 5.
Three Months Ended October 31, 1994 Compared to
Three Months Ended October 31, 1993
(amounts in thousands)
Revenues Earnings (loss)
1994 1993 1994 1993
-------- -------- -------- --------
Tax services $ 27,733 $ 26,315 $(35,114) $(32,338)
Computer services 136,631 102,543 34,336 24,442
Financial services 6,792 1,447 (1,308) (154)
Other services 550 - (2,020) -
Inter-segment
eliminations (3,454) (2,625) - -
-------- -------- -------- --------
168,252 127,680 (4,106) (8,050)
Investment income 4,554 3,464 4,554 3,464
Unallocated corporate 51 62 (2,477) (3,281)
-------- -------- -------- --------
$172,857 $131,206 (2,029) (7,867)
======== ========
Income tax benefit (777) (3,694)
-------- --------
Net loss from
continuing
operations (1,252) (4,173)
Net earnings from
discontinued
operations - 3,241
-------- --------
Net loss $ (1,252) $ (932)
======== ========
Consolidated revenues for the three months ended October 31, 1994 increased
31.7% to $172.857 million from $131.206 million reported last year. The
increase is primarily due to greater revenues reported by the Computer
Services and Financial Services segments.
The consolidated pretax loss for the second quarter of fiscal 1995 improved
74.2% to $2.029 million from a pretax loss from continuing operations of
$7.867 million in the second quarter of last year. The significant
improvement in the second quarter loss is due to the improved operating
results of the Computer Services segment, offset by increased losses reported
by the other operating segments.
The net loss was $1.252 million, or $.01 per share, compared to a net loss
from continuing operations of $4.173 million, or $.04 per share, for the same
period last year. Discontinued operations which were sold in January 1994
contributed earnings of $.03 per share in the second quarter of fiscal 1994.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased 5.4% to $27.733 million from $26.315 million last year, due
primarily to greater revenues generated by Australian tax operations during
its tax season and an improvement in the Canadian exchange rate.
The pretax loss increased 8.6% to $35.114 million from $32.338 million in the
second quarter of last year, as a result of increased employee compensation,
employee benefits, rent and other facility expenses.
COMPUTER SERVICES
Revenues increased 33.2% to $136.631 million from $102.543 million in the
comparable period last year, due to increases in both consumer and network
revenues. Consumer Services revenues were 47.5% better than last year,
despite a price decrease in February 1994. The growth in consumer revenues is
due to the increase in new customers in the United States and further
expansion into Europe. Network Services revenues were 33.1% better than last
year, due to increasing usage and new customers. Second quarter revenues for
the prior fiscal year include the operations of two software subsidiaries
which were sold in the first quarter of fiscal 1995. Exclusive of operations
sold, revenues increased 40.7% as compared to the prior year.
Pretax earnings increased 40.5% to $34.336 million from $24.442 million in the
second quarter of fiscal 1994. The increase in pretax earnings is
attributable to the continued strong performances of the Consumer and Network
divisions. Excluding the operating results of the software subsidiaries sold,
pretax earnings increased 45.2% as compared to the prior year. Pretax
earnings as a percentage of revenues, excluding the operations and gain on
sales of subsidiaries, was 25.1% for the second quarter of fiscal 1995,
compared to 24.3% for the same period last year. The increase in the pretax
margin resulted primarily from the exceptional increases in revenues which
outpaced expenses, a significant portion of which are not directly associated
with revenues.
FINANCIAL SERVICES
Revenues increased to $6.792 million from $1.447 million in the same period
last year. The increase in revenues was due to increases in credit card fees
and refund loan participation fees, and the revenues of the personal finance
software operations of MECA Software, Inc.
The pretax loss increased to $1.308 million from $154 thousand in the second
quarter of fiscal 1994, due to the loss reported by the personal finance
software business of MECA Software, Inc. which was acquired in November 1993,
partially offset by increased earnings of credit card operations.
OTHER SERVICES
Other services represent the operations of the personal tax software business
of Legal Knowledge Systems, Inc., formerly a subsidiary of MECA Software, Inc.
The second quarter loss of $2.020 million is due to the seasonality of tax
preparation software sales, which normally peak during the third and fourth
quarters of the fiscal year. The loss includes amortization expense of $247
thousand.
INVESTMENT INCOME
Investment income increased 31.5% to $4.554 million from $3.464 million last
year. The increase resulted primarily from greater funds available for
investment, largely due to the proceeds from the sale of Interim Services Inc.
received in the fourth quarter of fiscal 1994.
CORPORATE AND ADMINISTRATIVE EXPENSES
The corporate and administrative pretax loss for the second quarter decreased
24.5% to $2.477 million from $3.281 million in the comparable period last
year. The improvement is the result of the first-time allocation to operating
segments of certain employee benefit expenses paid at the corporate level, in
addition to management's efforts to control corporate overhead expenses.
Three Months Ended October 31, 1994 (Second Quarter) Compared to
Three Months Ended July 31, 1994 (First Quarter)
(amounts in thousands)
Revenues Earnings (loss)
2nd Qtr 1st Qtr 2nd Qtr 1st Qtr
-------- -------- -------- --------
Tax services $ 27,733 $ 9,563 $(35,114) $(39,998)
Computer services 136,631 127,896 34,336 33,912
Financial services 6,792 5,989 (1,308) 211
Other services 550 78 (2,020) (2,039)
Inter-segment
eliminations (3,454) (3,277) - -
-------- -------- -------- --------
168,252 140,249 (4,106) (7,914)
Investment income 4,554 5,151 4,554 5,151
Unallocated corporate 51 - (2,477) (2,034)
-------- -------- -------- --------
$172,857 $145,400 (2,029) (4,797)
======== ========
Income tax benefit (777) (1,837)
-------- --------
Net loss $ (1,252) $ (2,960)
======== ========
Consolidated revenues increased 18.9% to $172.857 million from $145.400
million in the first quarter of fiscal 1995. The significant increase is due
to higher revenues generated by all of the operating segments, with the
majority of the increase due to Tax Services and Computer Services.
The consolidated pretax loss decreased 57.7% to $2.029 million from $4.797
million for the three months ended July 31, 1994. The improvement is due
entirely to the Tax Services segment which decreased its operating loss by
12.2%.
The net loss was $1.252 million, or $.01 per share, compared to a net loss of
$2.960 million, or $.03 per share, for the first quarter of fiscal 1995. The
decreased loss largely resulted from a reduction in the loss reported by Tax
Services, offset by a loss reported by Financial Services and lower investment
income.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased $18.170 million to $27.733 million from $9.563 million
reported in the first quarter of fiscal 1995. The increase partially resulted
from the onset of the tax season in Australia, which contributed revenues of
approximately $8.5 million. U.S. revenues increased approximately $9.5
million due to tuition tax school fees earned in the second quarter and
increased sales of supplies to franchisees, both of which are seasonal.
The pretax loss decreased 12.2% to $35.114 million from $39.998 million
reported for the three months ended July 31, 1994. The decrease is due to
earnings reported by Australian tax operations from its fiscal 1995 tax
season.
COMPUTER SERVICES
Revenues increased 6.8% to $136.631 million from $127.896 million reported in
the first quarter of fiscal 1995. The increase is due to the improved
performance of the Consumer Services and Network Services divisions, offset by
the operating revenues and the gain on the sale of two software subsidiaries
which were sold during the first quarter. Exclusive of the gain and the
operating revenues of these subsidiaries, revenues for the second quarter
increased 11.0% as compared to the first quarter. Consumer Services and
Network Services revenues for the three months ended October 31, 1994
increased 12.8% and 8.8%, respectively, as compared to the first quarter of
fiscal 1995. The growth in Consumer Services is due to an increase in new
customers in the United States and business development in Europe, and the
growth in Network Services resulted from increasing usage and new
customers.
Pretax earnings increased 1.3% to $34.336 million from $33.912 million
reported in the first quarter of fiscal 1995. Exclusive of the gain on the
sale and the operating results of two software subsidiaries sold, pretax
earnings increased 11.1% as compared to the first quarter of fiscal 1995.
Pretax earnings as a percentage of revenues, excluding operating results and
the gain on the sale of subsidiaries sold, was 25.1% for both the first and
second quarters of fiscal 1995.
FINANCIAL SERVICES
Revenues increased 13.4% to $6.792 million from $5.989 million for the three
months ended July 31, 1994. The increase resulted primarily from increases in
revenues from credit card operations and software sales, offset by a decrease
in refund anticipation loan activity caused by seasonality.
The pretax loss was $1.308 million, compared to pretax earnings of $211
thousand for the first quarter of fiscal 1995, resulting primarily from
decreased refund anticipation loan activity and increased general and
administrative expenses, slightly offset by better results reported by the
credit card operations.
OTHER SERVICES
Revenues increased to $550 thousand from $78 thousand in the first quarter of
fiscal 1995. The pretax loss for the second quarter decreased .9% to $2.020
million from $2.039 million in the first quarter. The losses result from the
seasonality of tax preparation software sales, which normally peak during the
third and fourth quarters of the fiscal year.
INVESTMENT INCOME
Investment income decreased 11.6% to $4.554 million from $5.151 million earned
for the three months ended July 31, 1994, due to the resources required to
fund operations during the Tax Services segment's off-season.
CORPORATE AND ADMINISTRATIVE EXPENSES
The corporate and administrative pretax loss increased 21.8% to $2.477 million
from $2.034 million in the first quarter of fiscal 1995, resulting from
increased office expenses, consultant fees and stockholder expenses.
Six Months Ended October 31, 1994 (FYTD) Compared to
Six Months Ended October 31, 1993 (FYTD)
(amounts in thousands)
Revenues Earnings (loss)
1994 1993 1994 1993
-------- -------- -------- --------
Tax services $ 37,296 $ 35,987 $(75,112) $(69,502)
Computer services 264,527 194,431 68,248 46,030
Financial services 12,781 1,984 (1,097) (272)
Other services 628 - (4,059) -
Inter-segment
eliminations (6,731) (5,475) - -
-------- -------- -------- --------
308,501 226,927 (12,020) (23,744)
Investment income 9,705 7,531 9,705 7,531
Unallocated corporate 51 62 (4,511) (6,029)
-------- -------- -------- --------
$318,257 $234,520 (6,826) (22,242)
======== ========
Income tax benefit (2,614) (9,826)
-------- --------
Net loss from
continuing
operations (4,212) (12,416)
Net earnings from
discontinued
operations - 6,043
-------- --------
$ (4,212) $ (6,373)
======== ========
Consolidated revenues for the six months ended October 31, 1994 increased
35.7% to $318.257 million from $234.520 million reported last year. The
increase is principally due to greater revenues reported by the Computer
Services and Financial Services segments, including the gain on the sale of
two software subsidiaries of $2.796 million.
The consolidated pretax loss improved 69.3% to $6.826 million from a loss from
continuing operations of $22.242 million in the comparable period last year.
The improvement is almost entirely related to the Computer Services segment
which increased earnings by 48.3%, including the gain on sales of
subsidiaries, offset by increased losses reported by Tax Services and Other
Services.
The net loss was $4.212 million, or $.04 per share, compared to a net loss
from continuing operations of $12.416 million, or $.12 per share, for the
comparable period last year. Discontinued operations which were sold in
January 1994 contributed earnings of $.06 per share for the six months ended
October 31, 1993.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased 3.6% to $37.296 million from $35.987 million last year, due
to higher revenues generated by Australian tax operations and increased tax
preparation fees in the United States.
The pretax loss increased 8.1% to $75.112 million from $69.502 million last
year, due to increased employee compensation, employee benefits, office rent
and other facility and equipment expenses.
COMPUTER SERVICES
Revenues increased 36.1% to $264.527 million from $194.431 million last year
due to increases in both consumer and network revenues. Consumer Services
revenues were 48.5% better than last year, despite a price decrease in
February 1994. The consumer revenues growth is due to the increase in new
customers and expansion of European operations. Network Services revenues
were 33.1% better than last year, due to increasing usage and new customers.
Computer Services revenues include a pretax gain of $2.796 million on the sale
of two small subsidiaries. Exclusive of the gain on the sale and the
operating revenues of these subsidiaries, Computer Services revenues increased
41.0% from the comparable period last year.
Pretax earnings increased 48.3% to $68.248 million from $46.030 million last
year. The increase in pretax earnings is attributable to the continued strong
performances of the Consumer and Network divisions, in addition to the gains
recorded on the sale of two subsidiaries. Excluding the gain and the
operating results of the software subsidiaries sold, pretax earnings increased
44.9% from the comparable period last year. Pretax earnings as a percentage
of revenues, excluding the gain and operating results of subsidiaries sold,
was 25.1% for the six months ended October 31, 1994, compared to 24.5% for the
same period last year. The increase in the pretax margin resulted primarily
from revenue increases which outpaced expenses, a significant portion of which
are not directly associated with revenues.
FINANCIAL SERVICES
Revenues increased to $12.781 million from $1.984 million last year. The
increased activity of refund anticipation loan operations, credit card
operations and the personal finance software operations of MECA Software,
Inc., acquired in November 1993, all contributed to the revenues increase.
The pretax loss increased to $1.097 million from a pretax loss of $272
thousand last year. The increased loss is due to the personal finance
software operations, which were acquired in the third quarter of fiscal 1994,
partially offset by increased earnings from refund anticipation loan activity
and credit card operations. Personal finance software sales are seasonal in
nature, with sales increasing in the third and fourth quarters of the fiscal
year due to the holiday season and filing of tax returns. The loss includes
goodwill amortization expense of $502 thousand.
OTHER SERVICES
The pretax loss of $4.059 million for the six months ended October 31, 1994 is
due to the seasonality of tax preparation software sales, which normally peak
during the third and fourth quarters of the fiscal year. The loss includes
goodwill amortization expense of $494 thousand.
INVESTMENT INCOME
Investment income increased 28.9% to $9.705 million from $7.531 million last
year. The increase resulted primarily from greater funds available for
investment, largely due to the proceeds from the sale of Interim Services Inc.
received in the fourth quarter of fiscal 1994.
CORPORATE AND ADMINISTRATIVE EXPENSES
The corporate and administrative pretax loss decreased 25.2% to $4.511 million
from $6.029 million last year. The improvement is the result of the first-
time allocation to operating segments of certain employee benefit expenses
paid at the corporate level.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the registrant was held on September 7,
1994. At such meeting, three Class II directors were elected to serve three-
year terms. In addition, the resolutions set forth below were submitted to a
vote of shareholders. With respect to the election of directors and the
adoption of each resolution, the number of votes cast for, against or
withheld, and the number of abstentions or nonvotes were as follows:
Election of Class II Directors
Nominee Votes FOR Votes WITHHELD
--------------- ---------- --------------
G. Kenneth Baum 86,030,089 846,605
Henry F. Frigon 86,028,230 848,465
Roger W. Hale 86,034,917 841,777
Approval of Amendment to Third Stock Option Plan for
Seasonal Employees
The following resolutions were adopted by a vote of
84,432,404 shares in favor of such resolutions, 1,730,829
shares against such resolutions and 713,260 shares
abstaining. In addition, there were 201 shares for which
proxies were submitted for the meeting, but for which no
vote was cast on the resolutions. The resolutions state:
"RESOLVED, That this corporation's Third
Stock Option Plan for Seasonal Employees, as
amended, be further amended by deleting the
figure '80%' from the first sentence of Section C
of Article 9 of said Plan and replacing such
figure with the figure '50%'; and
"FURTHER RESOLVED, That said amendment
shall be effective January 1, 1995, and shall
apply to all options then outstanding under the
Plan, as well as to all options thereafter
granted under the Plan."
Appointment of Auditors
The following resolution was adopted by a vote of 86,396,813
shares in favor of such resolution, 153,779 shares against
such resolution and 326,103 shares abstaining:
"RESOLVED, That the appointment of Deloitte
& Touche as the independent auditors for H&R
Block, Inc., and its subsidiaries for the year
ending April 30, 1995, is hereby ratified,
approved and confirmed."
At the close of business on July 19, 1994, the record date for the annual
meeting of shareholders, there were 106,576,312 shares of Common Stock of the
registrant outstanding and entitled to vote at the meeting. There were
86,876,694 shares represented at the annual meeting of shareholders held on
September 7, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(10)(a) Amendment No. 1 to H&R Block Supplemental Deferred Compensation
Plan for Executives.
(10)(b) Employment Agreement between HRB Management, Inc. and William
F. Evans.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the second
quarter of fiscal year 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H&R BLOCK, INC.
(Registrant)
DATE 12/09/94 BY /s/ William P. Anderson
------------ ----------------------------------
William P. Anderson
Senior Vice President and
Chief Financial Officer
DATE 12/09/94 BY /s/ Ozzie Wenich
------------ ----------------------------------
Ozzie Wenich
Vice President, Finance
and Treasurer