HR Block 2011 Annual Report Download - page 39

amendment to the merger agreement, which is discussed in Item 9B. There are no assurances that the DOJ’s
lawsuit will be resolved in our favor or that the transaction will be consummated.
If the closing conditions are satisfied and this acquisition is consummated, we expect this acquisition will be
funded by excess available liquidity from cash-on-hand or short-term borrowings.
Sales of Businesses. In fiscal year 2011, we sold 280 tax offices to franchisees for proceeds of $65.6 million. In
fiscal year 2010, we sold 267 tax offices to franchisees for proceeds of $65.7 million. In fiscal year 2009, we sold
certain tax offices to franchisees for proceeds of $16.9 million. The majority of these sales were financed through
loans we made to our franchisees.
Loans Made to Franchisees. Loans made to franchisees totaled $92.5 million and $89.7 million for fiscal years
2011 and 2010, respectively. We received payments from franchisees totaling $57.6 million and $40.7 million,
respectively. These amounts include both the financing of sales of tax offices and franchisee draws under our
Franchise Equity Lines of Credit (FELCs).
Discontinued Operations. In fiscal year 2009, we sold our financial advisor business for proceeds of
$304.0 million.
CASH FROM FINANCING ACTIVITIES – Changes in cash used in financing activities primarily relate to the
following:
Short-Term Borrowings. We use commercial paper borrowings to fund our off-season losses and cover our
seasonal working capital needs, however we had no commercial paper borrowings outstanding as of April 30, 2011
or 2010. Our commercial paper borrowings peaked at $674.7 million in the current year. We had other short-term
borrowings in prior years to fund our participation interests in RALs.
FHLB Borrowings. HRB Bank obtains borrowings from the FHLB in accordance with regulatory and capital
requirements. During fiscal years 2011, 2010 and 2009, we had net repayments of $50.0 million, $25.0 million and
$29.0 million, respectively.
Customer Banking Deposits. Customer banking deposits used $11.4 million in the current year compared to
$17.5 million provided in fiscal year 2010 and $64.4 million in fiscal year 2009. These deposits are held by HRB Bank
Dividends. We have consistently paid quarterly dividends. Dividends paid totaled $186.8 million, $200.9 million
and $198.7 million in fiscal years 2011, 2010 and 2009, respectively.
Repurchase and Retirement of Common Stock. During fiscal year 2011, we purchased and immediately
retired 19.0 million shares of our common stock at a cost of $279.9 million. During fiscal year 2010, we purchased
and immediately retired 12.8 million shares of our common stock at a cost of $250.0 million. We may continue to
repurchase and retire common stock or retire treasury stock in the future.
In June 2008, our Board of Directors rescinded the previous authorizations to repurchase shares of our common
stock and approved an authorization to purchase up to $2.0 billion of our common stock through June 2012. There
was $1.4 billion remaining under this authorization at April 30, 2011.
Issuances of Common Stock. In October 2008, we sold 8.3 million shares of our common stock, without par
value, at a price of $17.50 per share in a registered direct offering through subscription agreements with selected
institutional investors. We received net proceeds of $141.4 million, after deducting placement agent fees and other
offering expenses. The purpose of the equity offering was to ensure we maintained adequate equity levels, as a
condition of our CLOC, during our off-season. Proceeds were used for general corporate purposes.
Proceeds from the issuance of common stock in accordance with our stock-based compensation plans totaled
$0.4 million, $16.7 million and $71.6 million in fiscal years 2011, 2010 and 2009, respectively.
HRB BANK – Block Financial LLC (BFC) typically makes capital contributions to HRB Bank to help it meet its
capital requirements. BFC made capital contributions to HRB Bank of $235.0 million during fiscal years 2011 and
2010, and $245.0 million in fiscal year 2009.
Historically, capital contributions by BFC have been repaid as a return of capital by HRB Bank as capital
requirements decline. A return of capital or dividend paid by HRB Bank must be approved by the OTS. Although
the OTS has approved such payments in the past, there is no assurance that they will continue to do so in the
future, in particular if they determine that higher capital levels at HRB Bank are necessary due to non-performing
asset levels. In addition, BFC may elect to maintain higher capital levels at HRB Bank. HRB Bank paid dividends
and returned of capital of $262.5 million during fiscal year 2011, comprised of $37.5 million in REO properties and
loans and $225.0 million in cash. At April 30, 2011, HRB Bank had cash balances of $615.1 million. Distribution of
those cash balances would be subject to OTS approval and are therefore not currently available for general
corporate purposes.
See additional discussion of regulatory and capital requirements of HRB Bank in “Regulatory Environment”
below.
H&R BLOCK 2011 Form 10K 27