H&R Block, Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by H&R Block, Inc. on February 3, 2010. The filing details the entry into new material definitive agreements and the termination of a prior agreement involving RSM McGladrey, Inc. (RSMM), an indirect wholly-owned subsidiary of H&R Block, and McGladrey & Pullen, LLP (M&P). These actions formalize the renewal of the business relationship between the two entities following a period of dispute.
Key Financial Metrics
The filing text does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures for the reporting period. The document focuses exclusively on contractual and governance arrangements rather than financial performance data.
Material Changes and Agreements
- New Governance Agreement: Effective February 3, 2010, establishing a new organizational structure and governance framework for the Alternative Practice Structure (APS) between RSMM and M&P.
- Compensation Structure: A new regular compensation plan was established with a 33/67 split of net income from RSMM operations.
- Administrative Services Agreement (ASA): An Amended and Restated ASA will become effective May 1, 2010, replacing the 2006 ASA. It includes a five-year term with automatic five-year extensions.
- Fee Arrangements: M&P will pay RSMM an annual administration fee of 3% of M&P's portion of certain shared overhead costs for non-public accounting administrative services.
- Termination of Prior Agreement: The 1999 Operations Agreement was terminated and replaced by the new Governance Agreement.
- Withdrawal of Termination Notices: Both parties withdrew previous notices of termination regarding the 2006 ASA.
Restrictive Covenants and Risks
The parties agreed to modify restrictive covenants based on a November 24, 2009 arbitration award. Upon termination of the Administrative Services Agreement, M&P is generally prohibited from:
- Engaging in businesses in which RSMM operates for 17 months.
- Soliciting clients or potential clients of RSMM for 29 months.
- Soliciting employees of RSMM for 24 months.
The Administrative Services Agreement may be terminated if legislative or regulatory changes render the agreement unlawful or pursuant to an escalation and resolution process.
Investor Verification Checklist
- Verify the effective date of the new Administrative Services Agreement (May 1, 2010) and the interim status of the 2006 ASA.
- Confirm the specific definition of "net income" used for the 33/67 compensation split.
- Review the arbitration award dated November 24, 2009, to understand the baseline for the modified restrictive covenants.
- Monitor for any future regulatory changes that could trigger the termination clause in the Administrative Services Agreement.