1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-6089
H&R BLOCK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 44-0607856
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4400 MAIN STREET
KANSAS CITY, MISSOURI 64111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(816) 753-6900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's Common Stock, without par
value, at September 1, 1997 was 104,178,653 shares.
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TABLE OF CONTENTS
Page
PART I Financial Information
Consolidated Balance Sheets
July 31, 1997 and April 30, 1997 .................... 1
Consolidated Statements of Operations
Three Months Ended July 31, 1997 and 1996 ........... 2
Consolidated Statements of Cash Flows
Three Months Ended July 31, 1997 and 1996 ........... 3
Notes to Consolidated Financial Statements ............ 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 8
PART II Other Information ..................................... 12
SIGNATURES ...................................................... 14
3
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS
JULY 31, APRIL 30,
1997 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 303,920 $ 457,079
Marketable securities 20,269 61,755
Receivables, less allowance for doubtful accounts of $32,198
and $30,144 518,739 407,441
Prepaid expenses and other current assets 84,299 27,681
Net assets of discontinued operations 517,928 522,144
---------- ----------
TOTAL CURRENT ASSETS 1,445,155 1,476,100
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 35,582 20,273
Excess of cost over fair value of net tangible assets
acquired, net of amortization 260,991 74,794
Other 68,552 56,474
---------- ----------
365,125 151,541
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 66,082 65,065
---------- ----------
$1,876,362 $1,692,706
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 657,209 $ 269,619
Accounts payable, accrued expenses and deposits 152,103 164,872
Accrued salaries, wages and payroll taxes 10,662 105,326
Accrued taxes on earnings 74,640 114,840
---------- ----------
TOTAL CURRENT LIABILITIES 894,614 654,657
OTHER NONCURRENT LIABILITIES 40,098 38,952
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Convertible preferred stock, no par, stated value $.01 per share 4 4
Additional paid-in capital 501,528 502,308
Retained earnings 625,479 684,071
---------- ----------
1,128,100 1,187,472
Less cost of 4,855,276 and 4,905,421 shares of common stock
in treasury 186,450 188,375
---------- ----------
941,650 999,097
---------- ----------
$1,876,362 $1,692,706
========== ==========
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
-------------------------
JULY 31,
--------
1997 1996
---------- ----------
REVENUES
Service revenues $ 35,767 $ 19,144
Royalties 1,017 931
Other income 7,183 540
--------- ----------
43,967 20,615
--------- ----------
OPERATING EXPENSES
Employee compensation and benefits 30,193 21,555
Occupancy and equipment 35,600 29,998
Marketing and advertising 3,299 1,601
Supplies, freight and postage 2,117 1,930
Other 33,457 15,361
--------- ----------
104,666 70,445
--------- ----------
Operating loss (60,699) (49,830)
OTHER INCOME
Investment income, net 5,190 3,944
--------- ----------
Loss from continuing operations before income tax benefit (55,509) (45,886)
Income tax benefit (20,648) (17,391)
--------- ----------
Net loss from continuing operations (34,861) (28,495)
Net loss from discontinued operations (less applicable
taxes of $1,488 and $14,788) (3,274) (23,731)
--------- ----------
Net loss $ (38,135) $ (52,226)
========= ==========
Weighted average number of common shares outstanding 104,102 103,823
========= ==========
Net loss per share from continuing operations $ (.33) $ (.27)
========= ==========
Net loss per share $ (.37) $ (.50)
========= ==========
Dividends per share $ .20 $ .32
========= ==========
Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED, AMOUNTS IN THOUSANDS
THREE MONTHS ENDED
------------------
JULY 31,
--------
1997 1996
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (38,135) $ (52,226)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 8,796 6,629
Other noncurrent liabilities 1,146 2,112
Changes in:
Receivables 342,147 (19,806)
Prepaid expenses and other current assets (21,439) (7,656)
Net assets of discontinued operations 4,177 23,126
Accounts payable, accrued expenses and deposits (19,605) 5,369
Accrued salaries, wages and payroll taxes (96,471) (84,666)
Accrued taxes on earnings (39,936) (53,232)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES 140,680 (180,350)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (111,837) (14,682)
Maturities of marketable securities 138,738 1,229
Purchases of property and equipment (4,149) (3,263)
Excess of cost over fair value of net tangible assets acquired,
net of cash acquired (223,209) (2,226)
Other, net (5,138) (2,836)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (205,595) (21,778)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (2,808,632) (1,298,813)
Proceeds from issuance of notes payable 2,740,059 1,338,271
Dividends paid (20,816) (33,095)
Proceeds from stock options exercised 1,145 1,862
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (88,244) 8,225
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (153,159) (193,903)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 457,079 405,019
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 303,920 $ 211,116
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 19,950 $ 12,319
Interest paid 5,668 1,329
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited, dollars in thousands, except share data
1. The Consolidated Balance Sheet as of July 31, 1997, the Consolidated
Statements of Operations for the three months ended July 31, 1997 and 1996,
and the Consolidated Statements of Cash Flows for the three months ended
July 31, 1997 and 1996 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 July 31, 1997 and for all periods
presented have been made.
Reclassifications have been made to prior year amounts to conform with the
current year presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's April 30, 1997 Annual Report to
Shareholders.
Operating revenues are seasonal in nature with peak revenues occurring in
the months of January through April. Thus, the three month results are not
indicative of results to be expected for the year.
2. On September 7, 1997, the Company entered into an Agreement and Plan of
Merger (Merger Agreement) under which a subsidiary of WorldCom, Inc.
(WorldCom) would acquire CompuServe Corporation (CompuServe). At the
effective time of the merger, each of the outstanding shares of CompuServe
common stock (including the 74,200,000 shares owned by the Company) are to
be converted into the right to receive, and there shall be paid and
issued, in exchange for each of the CompuServe shares, .40625 of a share
of WorldCom stock, subject to adjustment as provided in the Merger
Agreement. The transaction is subject to the satisfaction of certain
conditions set forth in the Merger Agreement and is expected to close as
soon as practicable after the satisfaction of all of such conditions. The
consolidated financial statements have been reclassified to reflect the
Company's Computer Services segment as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30. Revenues from
Computer Services for the three months ended July 31, 1997 and 1996
were $205.7 million and $208.6 million, respectively.
3. On June 17, 1997, the Company completed the purchase of Option One Mortgage
Corporation (Option One). The cash purchase price was $218.1 million,
consisting of $28.1 million in adjusted stockholder's equity and a premium
of $190 million. In addition, the Company made a cash payment of $456
million to Option One's parent to eliminate intercompany loans made to
Option One to finance its mortgage loan operations. Both payments are
subject to post-closing adjustments. The $456 million payment was recorded
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as an intercompany loan and was repaid to the Company by the end of June
1997 after Option One sold the loans to a third party in the ordinary
course of business. The acquisition was accounted for as a purchase, and
accordingly, Option One's results are included since the date of
acquisition. The fair value of tangible assets acquired and liabilities
assumed was $683.8 million and $463.9 million, respectively. Liabilities
assumed were treated as a noncash investing activity in the Consolidated
Statement of Cash Flows for the three months ended July 31, 1997. The
excess of cost over fair value of net tangible assets acquired was $183.1
million and is being amortized on a straight-line basis over 15 years.
The acquisition was financed with short-term borrowings and it is the
intention of the Company that the acquisition will ultimately be financed
with the issuance of $250 million in medium-term debt securities in the
second quarter of fiscal 1998.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and Option One as if the acquisition
had occurred on May 1, 1997 and 1996, after giving effect to certain
adjustments, including amortization of intangible assets, increased
interest expense on the acquisition debt and the related income tax
effects. The pro forma information is presented for information purposes
only and is not necessarily indicative of what would have occurred if the
acquisition had been made as of those dates. In addition, the pro forma
information is not intended to be a projection of future results.
Three months ended
------------------
July 31,
--------
1997 1996
---- ----
Revenues $ 56,017 $ 40,364
Net loss (42,036) (54,146)
Net loss per share (.40) (.52)
4. Receivables consist of the following:
July 31, April 30,
-------- ---------
1997 1997
-------- ---------
Credit card loans $ 245,806 $ 177,215
Mortgage loans held for sale 223,707 29,623
Other 81,424 230,747
--------- ---------
550,937 437,585
Allowance for doubtful accounts 32,198 30,144
--------- ---------
$ 518,739 $ 407,441
========= =========
5. During the quarter ended July 31, 1997, the net unrealized holding gain
on available-for-sale securities increased $463 to $1,789.
6. The Company files its Federal and state income tax returns on a calendar
year basis. The Consolidated Statements of Operations reflect the
effective tax rates expected to be applicable for the respective full
fiscal years.
7. 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 first quarter of fiscal
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1998 increased to 104,102,000 from 103,823,000 last year, due to the
issuance of treasury shares for a franchise acquisition in the first
quarter of fiscal 1997 and stock option exercises.
8. During the three months ended July 31, 1997 and 1996, the Company issued
50,145 and 27,406 shares, respectively, pursuant to provisions for exercise
of stock options under its stock option plans.
9. During fiscal 1997, CompuServe, certain current and former officers and
directors of CompuServe and the registrant were named as defendants in six
lawsuits pending before the state and Federal courts in Columbus, Ohio. All
but two of the original six cases were brought as putative class actions.
All suits allege similar violations of the Securities Act of 1933 based on
assertions of omissions and misstatements of fact in connection with
CompuServe's public filings related to its initial public offering. Relief
sought is unspecified, but includes pleas for rescission and damages. One
purported class action lawsuit was voluntarily dismissed by the plaintiffs
and such plaintiffs have joined in one of the remaining class action
lawsuits in Federal court. The other Federal lawsuit names the lead
underwriters of CompuServe's initial public offering as additional
defendants and as representatives of a defendant class consisting of all
underwriters who participated in such offering. The Federal suits are both
subject to pending motions to dismiss filed on behalf of the defendants,
and they are expected to be consolidated pursuant to a scheduling order
that has been entered in the first Federal lawsuit. The first state court
lawsuit also alleges violations of the Ohio Securities Code and common law
of negligent misrepresentation, while another state lawsuit alleges
violations of Colorado, Florida, and Ohio statutes and common law of
negligent misrepresentation in addition to the 1933 Act claims. Three of
the state lawsuits have been consolidated for discovery. A fourth state
lawsuit, Philip Silverglate v. CompuServe Corporation, H&R Block, Inc.,
etal., was filed during the first quarter of fiscal 1998, and is expected
to be consolidated with the other state lawsuits in due course. The
defendants are vigorously defending these lawsuits.
10. Summarized financial information for Block Financial Corporation (BFC), a
wholly owned subsidiary of the Company, is presented below.
July 31, April 30,
-------- ---------
1997 1997
-------- ---------
Condensed balance sheets:
Cash and cash equivalents $ 29,687 $ 3,425
Finance receivables, net 503,084 380,206
Other assets 271,118 34,657
-------- --------
Total assets $803,889 $418,288
======== ========
Commercial paper $657,209 $269,619
Other liabilities 28,762 26,867
Stockholder's equity 117,918 121,802
-------- --------
Total liabilities and stockholder's equity $803,889 $418,288
======== ========
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Three months ended
------------------
July 31,
------------------
1997 1996
------- -------
Condensed statements of operations:
Revenues $28,609 $8,224
Loss from operations (6,330) (1,022)
Net loss (3,887) (630)
11. BFC filed a $1.0 billion shelf registration statement for medium-term
debt securities after the end of the first quarter and intends to draw
down $250,000 on the shelf registration in the second quarter, as
discussed above. As part of its interest rate risk management strategy,
the Company hedged its interest rate risk related to the anticipated
issuance of medium-term debt by utilizing treasury rate guarantees. The
contract value and market value of these treasury rate guarantees as of
July 31, 1997 was $240,000 and $234,839, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
These comments should be read in conjunction with the Consolidated Balance
Sheets and Consolidated Statements of Cash Flows found on pages 1 and 3,
respectively.
Working capital decreased from $821.4 million at April 30, 1997 to $550.5
million at July 31, 1997. The working capital ratio at July 31, 1997 is 1.6 to
1, compared to 2.3 to 1 at April 30, 1997. The decrease in working capital and
working capital ratio is primarily due to the following: (1) working capital was
decreased by approximately $189.3 million due to the acquisition of Option One;
and (2) the seasonal nature of the Company's Tax Services segment. Tax return
preparation occurs almost entirely in the fourth quarter and has the effect of
increasing certain assets and liabilities during this time.
The Company maintains seasonal lines of credit to support short-term borrowing
facilities in the United States and Canada. During the months of January through
April, the Company's Canadian Tax Services regularly incurs short-term
borrowings to purchase refunds due its clients from Revenue Canada.
BFC incurs short-term borrowings throughout the year to fund receivables
associated with its credit card, nonconforming mortgage loan and other financial
service programs. BFC has a $1.0 billion back-up credit facility to support its
various financial activities through December 1997, subject to renewal. At July
31, 1997, short-term borrowings totaled $657.2 million compared to $269.6
million at April 30, 1997 due mainly to the acquisition of Option One and the
funding of its mortgage operations.
BFC filed a $1.0 billion shelf registration statement for medium-term debt
securities after the end of the first quarter of fiscal 1998. BFC intends to
draw down $250 million on the shelf registration in the second quarter to pay
down the commercial paper used to fund the acquisition of Option One, described
below.
The Company's capital expenditures, excluding the acquisition of Option One, and
dividend payments during the first three months were funded through
internally-generated funds.
The Company will pay CompuServe Corporation (CompuServe) approximately $40
million in the second quarter for the tax benefits derived by the Company from
CompuServe's operating losses in the 1996 calendar year using
internally-generated funds. Such payment will be made in accordance with the Tax
Sharing Agreement between the Company and CompuServe.
Upon the completion of the CompuServe transaction, described below, the Company
will hold an approximate 3 percent stake in WorldCom, Inc. (WorldCom) and will
evaluate various alternatives to convert its holdings into cash in a timely
manner. The proceeds will be used to assist the Company in growing its core tax
and financial services businesses and to fund the Company's stock repurchase
program discussed below.
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The Company announced in December 1993 its intention to repurchase from time to
time up to 10 million of its shares on the open market of which 4.8 million had
been repurchased at July 31, 1997. In July 1996, the Company announced its
intention to repurchase up to 10 million additional shares in the open market
over a two-year period following the separation of CompuServe. Such
authorization is in addition to the 1993 authorization. Following the completion
of the CompuServe transaction, the Company plans to continue to purchase its
shares on the open market in accordance with these authorizations. However, the
repurchase program will depend on the price of the stock, availability of excess
cash, the ability to maintain financial flexibility, and other investment
opportunities available.
RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
On June 17, 1997, the Company completed the purchase of Option One. Option One
engages in the origination, purchase, servicing, securitization and sale of
nonconforming mortgage loans. Based in Santa Ana, California, Option One has a
network of more than 5,000 mortgage brokers in 46 states. The cash purchase
price was $218.1 million. In addition, the Company made a cash payment of $456
million to Option One's parent to eliminate intercompany loans made to Option
One to finance its mortgage loan operations. Both payments are subject to
post-closing adjustments. The $456 million payment was recorded as an
intercompany loan and was repaid to the Company by the end of June 1997 after
Option One sold the mortgage loans to a third party in the ordinary course of
business. The acquisition was accounted for as a purchase, and accordingly,
Option One's results are included since the date of acquisition.
On September 7, 1997, the Company entered into an Agreement and Plan of Merger
(Merger Agreement) under which a subsidiary of WorldCom would acquire
CompuServe. At the effective time of the merger, each of the outstanding shares
of CompuServe common stock (including the 74,200,000 shares owned by the
Company) are to be converted into the right to receive, and there shall be paid
and issued, in exchange for each of the CompuServe shares, .40625 of a share of
WorldCom stock, subject to adjustment as provided in the Merger Agreement. The
transaction is subject to the satisfaction of certain conditions, including,
among others, the expiration or termination of any applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
any foreign competition law or similar law, the receipt of other regulatory
approvals and CompuServe shareholder approval and adoption of the Merger
Agreement. The Company has agreed to vote all of its directly or indirectly
owned shares of CompuServe common stock in favor of the merger, and such action
is sufficient to approve the transaction. The transaction will be treated as a
sale of assets for tax purposes and it is expected to close as soon as
practicable after the satisfaction of all the conditions set forth in the
Merger Agreement. The financial summary below has been reclassified to reflect
CompuServe as discontinued operations. CompuServe was previously reported in
the Computer Services segment.
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1997 COMPARED TO 1996
The analysis that follows should be read in conjunction with the table below
and the Consolidated Statements of Operations found on page 2.
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO
THREE MONTHS ENDED JULY 31, 1996
(AMOUNTS IN THOUSANDS)
Revenues Earnings (loss)
------------------- ------------------
1997 1996 1997 1996
-------- --------- -------- -------
Tax services $ 14,389 $ 12,282 $(52,059) $(45,229)
Financial services 29,209 8,224 (6,349) (1,022)
Unallocated corporate 387 109 (2,291) (3,579)
Investment income, net - - 5,190 3,944
Intersegment sales (18) - - -
-------- --------- -------- -------
$ 43,967 $ 20,615 (55,509) (45,886)
======== =========
Income tax benefit (20,648) (17,391)
-------- --------
Net loss from continuing operations (34,861) (28,495)
Net loss from discontinued operations (3,274) (23,731)
-------- --------
Net loss $(38,135) $(52,226)
======== ========
Consolidated revenues for the three months ended July 31, 1997 increased 113.3%
to $44.0 million from $20.6 million reported last year. The increase is
primarily due to the revenues of the Company's new retail mortgage operations
this year of $18.4 million, which include revenues of Option One, acquired on
June 17, 1997.
The consolidated pretax loss from continuing operations for the first quarter
of fiscal 1998 increased to $55.5 million from $45.9 million in the first
quarter of last year. The increase is attributable to the Tax Services
segment, which incurred a pretax loss of $52.1 million compared to $45.2
million in the first quarter of last year.
The net loss from continuing operations was $34.9 million, or $.33 per share,
compared to $28.5 million, or $.27 per share, for the same period last year.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased 17.2% to $14.4 million from $12.3 million last year,
resulting primarily from higher tax preparation fees that are attributable to
increases in pricing and in the number of tax returns prepared.
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The pretax loss increased 15.1% to $52.1 million from $45.2 million in the first
quarter of last year due to normal operational increases in compensation, rent
and utilities. Additionally, expenses associated with continued office
acquisitions and expansion, which include rent, salaries and benefits, have
contributed to the increased loss. Due to the seasonality of this segment's
business, first quarter operating results are not indicative of expected results
for the entire fiscal year.
FINANCIAL SERVICES
Revenues increased 255.2% to $29.2 million from $8.2 million in the same period
last year. The increase is primarily related to new mortgage operations which
contributed increased revenues of $18.4 million this year. New mortgage
operations include revenues related to the recently acquired Option One. Credit
card operations also contributed $2.4 million to the increase due to larger
revolving credit card balances over the first quarter of fiscal 1997.
The pretax loss increased to $6.3 million from $1.0 million in the first quarter
of fiscal 1997, primarily due to increased bad debt expenses resulting from
larger revolving credit card balances and operational costs related to the new
retail mortgage business. In addition, higher bad debt and compensation expenses
in software and online operations, respectively, contributed to the loss.
INVESTMENT INCOME, NET
Net investment income increased 31.6% to $5.2 million from $3.9 million last
year. The increase resulted from more funds available for investment.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the first quarter
decreased 36.0% to $2.3 million from $3.6 million in the comparable period last
year. The decrease resulted mainly from expenses included in the first quarter
of fiscal 1997 of $517 thousand related to the planned spin-off of the Company's
remaining investment in CompuServe. Also contributing to the decrease were lower
consultant fees, charitable contributions and insurance expenses.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During fiscal 1997, CompuServe Corporation (CompuServe), certain current and
former officers and directors of CompuServe and the registrant were named as
defendants in six lawsuits pending before the state and Federal courts in
Columbus, Ohio. All but two of the original six cases were brought as putative
class actions. All suits allege similar violations of the Securities Act of 1933
based on assertions of omissions and misstatements of fact in connection with
CompuServe's public filings related to its initial public offering. Relief
sought is unspecified, but includes pleas for rescission and damages. One
purported class action lawsuit was voluntarily dismissed by the plaintiffs and
such plaintiffs have joined in one of the remaining class action lawsuits in
Federal court. The other Federal lawsuit names the lead underwriters of
CompuServe's initial public offering as additional defendants and as
representatives of a defendant class consisting of all underwriters who
participated in such offering. The Federal suits are both subject to pending
motions to dismiss filed on behalf of the defendants, and they are expected to
be consolidated pursuant to a scheduling order that has been entered in the
first Federal lawsuit. The first state court lawsuit also alleges violations of
the Ohio Securities Code and common law of negligent misrepresentation, while
another state lawsuit alleges violations of Colorado, Florida, and Ohio statutes
and common law of negligent misrepresentation in addition to the 1933 Act
claims. Three of the state lawsuits have been consolidated for discovery. A
fourth state lawsuit, Philip Silverglate v. CompuServe Corporation, H&R Block,
Inc., etal., was filed during the first quarter of fiscal 1998, and is expected
to be consolidated with the other state lawsuits in due course. The defendants
are vigorously defending these lawsuits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
10(a) Amendment and Termination of the H&R Block, Inc. Retirement Plan for
Non-Employee Directors
10(b) Amendment No. 8 to the H&R Block Deferred Compensation Plan for
Executives
10(c) Amendment No. 3 to the H&R Block Deferred Compensation Plan for
Directors
10(d) Amendment No. 4 to the H&R Block Deferred Compensation Plan for
Directors
10(e) Amendment No. 4 to the H&R Block Supplemental Deferred Compensation
Plan for Executives
(27) Financial Data Schedule.
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b) Reports on Form 8-K
A Form 8-K, Current Report, dated July 2, 1997, was filed by the registrant
reporting as an "Item 2" the acquisition of Option One Mortgage Corporation on
June 17, 1997. The registrant reported under "Item 7" that the financial
statements of Option One Mortgage Corporation and the registrant's pro forma
financial statements would be filed as soon as practicable, but no more than 60
days after that Current Report. The registrant did not file any other reports on
Form 8-K during the first quarter of fiscal 1998.
A Form 8-K/A, Current Report, dated July 2, 1997, was filed on August 14,
1997 by the registrant reporting as an "Item 7" the audited financial statements
of Option One Mortgage Corporation for the years ended December 31, 1996 and
1995, the unaudited financial statements for the three months ended March 31,
1997 and 1996, and the unaudited pro forma financial statements of the
registrant for the year ended April 30, 1997. The consent of independent
auditors was included as Exhibit 23.1 to the Form 8-K/A.
A Form 8-K, Current Report, dated September 7, 1997, was filed by the
registrant reporting as an "Item 5" the entry by the registrant into an
Agreement and Plan of Merger with H&R Block Group, Inc., CompuServe
Corporation, WorldCom, Inc. and Walnut Acquisition Company, L.L.C., pursuant to
which WorldCom, Inc. would acquire CompuServe Corporation through a merger of
Walnut Acquisition Company, L.L.C. with and into CompuServe Corporation. The
Form 8-K also reported the entry by the registrant into both a Stockholders
Agreement and a Standstill Agreement with H&R Block Group, Inc. and WorldCom,
Inc. in connection with the Agreement and Plan of Merger. The Agreements were
exhibits to the Form 8-K, as was a copy of the joint press release of the
registrant and CompuServe Corporation dated September 8, 1997.
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16
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 9/15/97 BY /s/ Ozzie Wenich
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Ozzie Wenich
Senior Vice President,
Chief Financial Officer
and Treasurer
DATE 9/15/97 BY /s/ Patrick D. Petrie
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Patrick D. Petrie
Vice President and Corporate Controller
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