þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Reports of Independent Registered Public Accounting Firms |
1 | |||
Financial Statements: |
||||
Statements of Net Assets Available for Benefits as of
December 31, 2007 and 2006 |
3 | |||
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2007 |
4 | |||
Notes to Financial Statements as of December 31, 2007 and 2006,
and for the Year ended December 31, 2007 |
5 | |||
Supplemental Schedules: * |
||||
Form 5500, Schedule H, Part IV, Line 4i Schedule of Assets (Held at End of Year)
as of December 31, 2007 |
12 | |||
Form 5500, Schedule H, Part IV, Line 4a Delinquent Participant Contributions
for the Year Ended December 31, 2007 |
14 | |||
Signature |
15 | |||
Exhibits |
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Consents of Independent Registered Public Accounting Firms |
16 |
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December 31, | ||||||||
2007 | 2006 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 735,812 | $ | 32,790,167 | ||||
Investments, at fair value: |
||||||||
H&R Block, Inc. common stock fund |
12,907,696 | 13,776,850 | ||||||
Mutual funds |
570,351,419 | 521,630,845 | ||||||
Common collective trust |
50,507,449 | 50,449,473 | ||||||
Self-directed brokerage accounts |
20,848,648 | 14,300,172 | ||||||
Participant loans |
10,596,187 | 14,440,463 | ||||||
Total investments |
665,211,399 | 614,597,803 | ||||||
Receivables: |
||||||||
Employer contributions |
5,224,432 | 6,313,343 | ||||||
Participant contributions |
775,110 | 2,275,200 | ||||||
Dividends |
| 161,346 | ||||||
Other |
| 393,707 | ||||||
Total receivables |
5,999,542 | 9,143,596 | ||||||
Total assets |
671,946,753 | 656,531,566 | ||||||
Net assets available for benefits at
fair value |
671,946,753 | 656,531,566 | ||||||
Adjustment from fair value to contract value
for fully benefit-responsive investment contracts
(Note 2) |
1,302,552 | 1,327,846 | ||||||
Net assets available for benefits |
$ | 673,249,305 | $ | 657,859,412 | ||||
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For the Year Ended | ||||
December 31, 2007 | ||||
Additions: |
||||
Investment income: |
||||
Dividends and interest |
$ | 47,623,366 | ||
Net depreciation in fair value of investments |
(6,845,472 | ) | ||
40,777,894 | ||||
Contributions: |
||||
Employer |
30,565,842 | |||
Participant |
54,612,438 | |||
Rollover |
4,864,804 | |||
90,043,084 | ||||
Total additions |
130,820,978 | |||
Deductions: |
||||
Benefits paid to participants |
114,827,361 | |||
Administrative expenses |
603,724 | |||
Total deductions |
115,431,085 | |||
Increase in net assets |
15,389,893 | |||
Net assets available for benefits |
||||
Beginning of year |
657,859,412 | |||
End of year |
$ | 673,249,305 | ||
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1. | Description of the Plan | |
The following description of the H&R Block Retirement Savings Plan (the Plan) is provided for general information purposes only. Participants should refer to the Plan document for more complete information. | ||
General | ||
The Plan is a defined contribution plan sponsored by HRB Management, Inc., which is a wholly owned subsidiary of H&R Block, Inc. (the Company) for its employees and the employees of certain of its affiliates. The Plan became effective on January 1, 1985 and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). | ||
The Plan provides for selection of an administrative committee, a plan administrator and a trustee by the Board of Directors of the Company. The administrative committee is responsible for the general administration of the Plan and the interpretation of its provisions. The plan administrator is responsible for the reporting and disclosure requirements under ERISA. Fidelity Management Trust Company (Fidelity) is the Plans recordkeeper and trustee. | ||
Eligibility | ||
The timing of an employees eligibility for participation in the Plan depends on whether the employee is classified as a nonseasonal employee or seasonal employee. With respect to participant contributions and employer matching contributions: (a) nonseasonal employees are automatically enrolled in the Plan beginning the first day of the month following or coinciding with the date they complete 90 Days of Service, as such term is defined in the Plan, and (b) seasonal employees are automatically enrolled in the Plan beginning with the first participation date (January 1 or July 1) following or coinciding with the date they complete a Year of Service, as such term is defined in the Plan. With respect to employer profit sharing contributions, both nonseasonal and seasonal employees are eligible to participate beginning the first day of the Plan year that immediately precedes or is coincident with the date the employee completes a Year of Service. | ||
Contributions | ||
Participants may make pre-tax contributions from two to fifty percent of their compensation, subject to Internal Revenue Code limitations. Participants age 50 and over may make pre-tax contributions from zero to one-hundred percent of their compensation, subject to Internal Revenue Code limitations. The Company may make discretionary matching contributions of up to one hundred percent of a participants contributions, not to exceed five percent of the participants compensation. All participant and matching contributions are invested at the participants direction. The Company may also elect to make discretionary profit sharing contributions, which would be allocated among participant accounts based on the participants eligible compensation. For the year ended December 31, 2007, the Company contributed $30,565,842 for the matching contribution. No |
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discretionary profit sharing contributions were made during the year ended December 31, 2007. | ||
Vesting | ||
Participant and employer matching contributions, and earnings thereon, are fully vested and nonforfeitable at all times. | ||
Participant Accounts | ||
Individual accounts are maintained for each Plan participant. Each participants account is credited with the participants contribution, the Companys matching contribution, and allocations of Company discretionary contributions, and Plan earnings, and charged with withdrawals and an allocation of Plan losses and administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participants vested account. | ||
Investments | ||
Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers mutual funds, Company common stock, a self-directed brokerage account, and a common collective trust as investment options for participants. Participants have purchased shares of mutual funds and money market funds through the brokerage account. | ||
Participant Loans | ||
Participant loans must be at least $1,000 and are limited to the lesser of $50,000 less the highest outstanding loan balance in the previous 12 months or fifty percent of the participants vested account balance. Interest is prime plus one percent. Interest rates on participant loans range from 4.0% to 10.5%. Loans are payable over one to five years except for loans for the purchase of a residence, which may be longer. | ||
Payment of Benefits | ||
Generally, distributions may not be made to a participant, or in the case of death, a participants beneficiary, until administratively feasible following the earliest of the participants death, disability, retirement or severance from employment. Distributions are in the form of a lump sum cash payment, unless the participant elects to defer payment. | ||
Termination | ||
Although the Company has not expressed any intent to do so, it has the right to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in the Plan and under ERISA. |
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Forfeited Accounts | ||
At December 31, 2007 and 2006, forfeited accounts totaled $94,655 and $29,175, respectively. These accounts may be used to pay Plan expenses. During the year ended December 31, 2007, $27,898 was used to pay Plan expenses. | ||
2. | Summary of Significant Accounting Policies | |
Basis of Accounting | ||
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. | ||
Use of Estimates | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 additions to and deductions from net assets available for benefits during the reporting period. Actual results could differ from those estimates. | ||
Risks and Uncertainties | ||
The Plan invests in various investment securities. Investment securities, in general, are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in the financial statements. | ||
Investment Valuation and Income Recognition | ||
H&R Block, Inc. Common Stock fund is based on estimated fair value as determined by the trustee based on the fair market value of the underlying investments within the fund. Mutual funds, including those in self-directed brokerage accounts, are stated at fair value as determined by quoted market prices. The common collective trust is stated at estimated fair value as determined by the issuer of the common collective trust based on the fair market value of the underlying investments. Common collective trusts with underlying investments in benefit-responsive investment contracts are valued at the fair value of the underlying investments and then adjusted by the issuer to contract value. Participant loans are valued at the outstanding loan balances. | ||
The SEI Stable Asset Fund (the Trust) is a stable value fund formed to provide for the collective investment of assets of participating tax qualified pension and profit sharing plans and related trusts and governmental plans (or the assets of a governmental unit used to satisfy its obligations under a governmental plan) in guaranteed investment contracts and readily marketable assets in accordance with the investing criteria established by the Declaration of Trust. The Trust primarily invests in a variety of investment contracts such as guaranteed investment contracts (GICs) issued by insurance companies and other financial institutions and other |
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investment products (separate account contracts, synthetic GICs and collective investment trusts) with similar characteristics. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract value represents contributions made to the fund, plus earnings, less participant withdrawals. | ||
Individual participant accounts for the H&R Block, Inc. common stock unitized fund, which is made up of Company common stock and a money market fund, and the SEI Stable Asset Fund are maintained on a unit value basis. Participants do not have beneficial ownership in the specific underlying securities or other assets in the funds, but do have an interest therein represented by units valued daily. The funds earn dividends and interest which are automatically reinvested in additional units. Generally, contributions to and withdrawal payments from each fund are converted to units by dividing the amounts of such transactions by the unit values as last determined, and the participants accounts are charged or credited with the number of units properly attributable to each participant. | ||
In accordance with Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP No. 94-4-1, Reporting of Fully Benefit-Responsive Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP), the statements of net assets available for benefits present an investment contract at fair value, as well as an additional line item showing an adjustment of the fully benefit-responsive contract from fair value to contract value. The statement of changes in net assets available for benefit is presented on a contract value basis and is not affected by the FSP. Fair value of the contract is calculated by discounting the related cash flows based on current yields of similar instruments with comparable durations. | ||
The Plan presents in the statement of changes in net assets available for benefits the net appreciation (depreciation) in the fair value of its investments, which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments. Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date. | ||
Management fees and operating expenses charged to the Plan for the Plans investments are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments. | ||
New Accounting
Pronouncement In September 2006, the FASB issued Statement on Financial Accounting Standards No. 157 (SFAS No. 157), Fair Value Measurements. SFAS No. 157 established a single authorative definition of fair value, sets a framework for measuring fair value and requires additional disclosures about fair value measurement. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November |
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17, 2007. Plan management has not completed the process of evaluating the impact that will result from adopting SFAS No. 157. Plan management is therefore unable to disclose the impact that adopting SFAS No. 157 will have on its net assets available for benefits and changes in net assets available for benefits for defined contribution plans when such statement is adopted. | ||
Administrative Expenses | ||
All administrative expenses incurred by the Plan are paid by the Plan, except to the extent paid by the Company. To the extent forfeitures are not used to pay administrative expenses of the Plan, such expenses are covered using participant account balances. | ||
Payment of Benefits | ||
Benefit payments to participants are recorded upon distribution. Amounts allocated to accounts of persons who have elected to withdraw from the Plan but have not yet been paid were $835,761 at December 31, 2007. There were no benefits payable at December 31, 2006. | ||
3. | Investments | |
During the year ended December 31, 2007, the Plans investments (including gains and losses on investments bought, sold, and held during the year) appreciated (depreciated) in fair value as follows: |
H&R Block, Inc. common stock fund |
$ | (2,994,041 | ) | |
Self-directed brokerage accounts |
489,516 | |||
Mutual funds |
(4,340,947 | ) | ||
$ | (6,845,472 | ) | ||
The H&R Block, Inc. Common stock fund uses unit accounting. As a unitized stock fund, the Common stock Fund holds primarily H&R Block, Inc. common stock and a small percentage of cash and short-term investments, while participants hold units of the fund. | ||
The Plans investments that represented five percent or more of the Plans net assets available for benefits as of December 31, 2007 and 2006 are as follows: |
December 31, | ||||||||
2007 | 2006 | |||||||
EuroPacific Growth Fund R5 |
$ | 64,555,474 | $ | 50,401,431 | ||||
Growth Fund of America Class R5 |
46,935,913 | 42,630,257 | ||||||
Dodge & Cox Stock Fund |
97,300,060 | 97,933,295 | ||||||
SEI Institutional Mid Cap Growth Fund |
48,266,445 | * | ||||||
Vanguard Institutional Index Fund |
68,151,562 | 66,222,233 | ||||||
Vanguard Wellington Fund |
185,824,308 | 183,344,330 | ||||||
SEI Stable Asset Fund |
50,507,449 | 50,449,473 |
* | Investment option was new in 2007. |
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4. | Income Tax Status of the Plan | |
The Plan received its latest determination letter dated July 30, 2007 in which the Internal Revenue Service (IRS) stated the Plan is in compliance with the applicable requirements of the internal revenue code. The plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code and the Plan and related trust continue to be tax-exempt. Therefore, no provision for income taxes has been included in the Plans financial statements. | ||
5. | Exempt Party-in-Interest Transactions | |
Certain plan investments are shares of mutual funds managed by Fidelity. Fidelity is the recordkeeper and custodian as defined by the Plan and, therefore, these transactions qualify as exempt party-in-interest transactions. In addition, the H&R Block, Inc. common stock fund includes an investment in the common stock of H&R Block, Inc., and therefore, these transactions also qualify as exempt party-in-interest transactions. | ||
6. | Nonexempt Party-in-Interest Transactions | |
H&R Block, Inc. remitted January 30, 2007 and February 27, 2007 contributions of $6 and $313, respectively, to the trustee on February 26, 2007 and March 27, 2007, respectively, which was later than required by Department of Labor (DOL) Regulation 2510.3-102. The Company will file Form 5330 with the IRS and will pay the applicable excise tax on the transaction. In addition, participant accounts will be credited with the amount of the investment income that would have been earned had the participant contribution been remitted on a timely basis. | ||
7. | Reconciliation of Financial Statements to Form 5500 | |
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of December 31, 2007 and 2006: |
2007 | 2006 | |||||||
Net assets available for benefits per
the financial statements |
$ | 673,249,305 | $ | 657,859,412 | ||||
Adjustment from contract value to
fair value for fully benefit-responsive
investment contracts |
(1,302,552 | ) | (1,327,846 | ) | ||||
Amounts allocated to withdrawing participants |
(835,761 | ) | | |||||
Total investments (current value column) per
Form 5500 Schedule of Assets (Held at End of Year) |
$ | 671,110,992 | $ | 656,531,566 | ||||
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For the year ended December 31, 2007, the following is a reconciliation of net income per the financial statements to the Form 5500: |
Increase in Net Assets per the financial statements |
$ | 15,389,893 | ||
Change in fair value for fully benefit responsive
investment contracts |
25,294 | |||
Amounts allocated to withdrawing participants |
(835,761 | ) | ||
Net Income per Form 5500 |
$ | 14,579,426 | ||
For the year ended December 31, 2007, the following is a reconciliation of distributions to participants per the financial statements to the Form 5500: |
Total distributions to participants per the financial statements |
$ | 114,827,361 | ||
Add: Amounts allocated to withdrawing participants at
end of year |
835,761 | |||
Total distributions to participants per the Form 5500 |
$ | 115,663,122 | ||
8. | Subsequent Event | |
Effective January 1, 2008, Option One employees transferred out of the Plan into a new 401(k) Plan. As a result of the transaction, participant balances of $150,572,399 were transferred to the new plan. |
* * * * *
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(b) | ||||||||||||
(a) | Description of Investment, Including | (c) | (e) | |||||||||
Identity of Issuer or Borrower, | Maturity Date, Rate of Interest, Collateral, | Shares/Units | Current | |||||||||
Lessor or Similar Party | and Par or Maturity Value | Held | Value | |||||||||
* | H&R Block, Inc. Common Stock fund: | |||||||||||
H&R Block, Inc. | Common Stock |
677,317 | $ | 12,577,781 | ||||||||
Cash | Cash |
329,915 | 329,915 | |||||||||
Mutual funds: | ||||||||||||
American Funds Group | EuroPacific Growth Fund R5 |
1,269,028 | 64,555,474 | |||||||||
American Funds Group | Growth Fund of America Class R5 |
1,380,468 | 46,935,913 | |||||||||
Dodge & Cox Funds | Dodge & Cox Stock Fund |
703,747 | 97,300,060 | |||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2000 Fund |
50,999 | 630,861 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2005 Fund |
7,766 | 91,563 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2010 Fund |
52,216 | 773,837 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2015 Fund |
75,210 | 937,866 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2020 Fund |
46,216 | 730,683 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2025 Fund |
65,237 | 859,821 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2030 Fund |
61,856 | 1,021,859 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2035 Fund |
54,852 | 750,380 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2040 Fund |
128,592 | 1,251,198 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2045 Fund |
46,629 | 529,234 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom 2050 Fund |
94,086 | 1,075,398 | ||||||||
* | Fidelity Freedom Funds | Fidelity Freedom Income Fund |
49,072 | 561,880 | ||||||||
Harbor Funds | Harbor Small Cap Value Fund |
1,114,586 | 22,180,256 | |||||||||
PIMCO Funds | PIMCO Total Return Fund |
2,612,051 | 27,922,821 | |||||||||
SEI Investments | SEI Institutional Mid Cap Growth Fund |
2,545,699 | 48,266,445 | |||||||||
Vanguard Group | Vanguard Institutional Index Fund |
508,063 | 68,151,562 | |||||||||
Vanguard Group | Vanguard Wellington Fund |
3,298,266 | 185,824,308 |
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(b) | ||||||||||||
(a) | Description of Investment, Including | (c) | (e) | |||||||||
Identity of Issuer or Borrower, | Maturity Date, Rate of Interest, Collateral, | Shares/Units | Current | |||||||||
Lessor or Similar Party | and Par or Maturity Value | Held | Value | |||||||||
| | | | | ||||||||||||
Common Collective Trust | ||||||||||||
SEI Investments | SEI Stable Asset Fund |
51,810,001 | 50,507,449 | |||||||||
Self-directed brokerage accounts | BrokerageLink | 20,848,648 | ||||||||||
* | Plan participants | Participant Loans, Interest range: 4.0% to 10.5% with varying maturity dates through August 2028 | 10,596,187 | |||||||||
Total investments | $ | 665,211,399 | ||||||||||
* | Indicates party-in-interest to the Plan. |
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Relationship to Plan, Employer, | ||||||||
Identity of Party Involved | or Other Party-in-Interest | Description of Transactions | Amount | |||||
H&R Block, Inc. | Employer/Plan Sponsor | Participant contributions for employees
were not funded within the time period
prescribed by D.O.L. Regulation
2510.3-102. January 30, 2007 participant
contributions were deposited on February
26, 2007 and February 27, 2007
participant contributions were deposited
on March 27, 2007.
|
$319 |
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H&R Block Retirement Savings Plan | ||||||
Date
6/27/08
|
By: | /s/ Jeffrey T. Brown | ||||
Vice President and Corporate Controller | ||||||
H&R Block, Inc. |
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