HR Block 2016 Annual Report Download - page 10

22016 Form 10-K | H&R Block, Inc.
approximately equal to the carrying value of the liabilities (including all deposit liabilities) assumed by BofI. In
connection with the closing, we liquidated the available-for-sale (AFS) securities previously held by HRB Bank.
In connection with the closing of the P&A Transaction we and certain of our affiliated entities entered into the
Program Management Agreement, dated August 31, 2015 (PMA), the Emerald Advance Receivables Participation
Agreement (RPA), and the Guaranty Agreement, dated August 31, 2015 (Guaranty Agreement). The PMA, RPA and
Guaranty Agreement set forth the terms under which BofI offers H&R Block-branded financial products and services
that we distribute to our clients. Under these agreements, one of our affiliated entities also provides certain marketing,
servicing and operational support to BofI for such financial products and services, the performance of which is
guaranteed by the Company.
A more detailed description of the terms of the PMA, RPA and Guaranty Agreement is set forth under Item 1.01
of the Company's Current Report on Form 8-K filed with the SEC on April 10, 2014 (as supplemented by the description
of the revised terms of the PMA set forth under Item 1.01 of the Company’s Current Report on Form 8-K filed with
the SEC on August 5, 2015). The foregoing descriptions of the PMA, RPA and Guaranty Agreement (including the
description incorporated herein by reference) do not purport to be complete and are subject to, and qualified in their
entirety by, reference to the PMA, RPA and Guaranty Agreement, which were attached as Exhibits 10.1, 10.2 and 10.3,
respectively, to the Company's Current Report on Form 8-K filed with the SEC on September 1, 2015, each of which
is incorporated herein by reference.
Upon closing of the P&A Transaction, HRB Bank merged with and into its parent company, Block Financial,
surrendered its bank charter and ceased to exist as a bank. As a result, as of August 31, 2015, neither we nor any of
our subsidiaries is subject to minimum regulatory capital requirements or to regulation as a bank by the Office of the
Comptroller of the Currency (OCC).
In addition, H&R Block, Inc., H&R Block Group, Inc. and Block Financial (collectively, our Holding Companies) were
savings and loan holding companies (SLHCs) because they controlled HRB Bank. As a result of the P&A Transaction
and related actions, our Holding Companies have ceased to be SLHCs and have deregistered as SLHCs under Section
10(b) of the Home Owner's Loan Act. As of August 31, 2015, our Holding Companies are no longer subject to regulatory
capital requirements applicable to SLHCs or to regulation by the Federal Reserve.
Capital Structure. On September 1, 2015, we announced our intent to establish a new capital structure, which
included a new $3.5 billion share repurchase program approved by our Board of Directors, a new committed line of
credit, and the issuance of incremental public debt. In September and October, 2015, we (i) as a part of the announced
share repurchase program, completed our “modified Dutch auction” tender offer and purchased $1.5 billion of our
common stock at a price of $37.00 per share; (ii) terminated our previous committed line of credit agreement and
entered into a new five-year, $2.0 billion Credit and Guarantee Agreement; and (iii) issued $650.0 million of 4.125%
Senior Notes due October 1, 2020, and $350.0 million of 5.250% Senior Notes due October 1, 2025. Proceeds of the
2020 Senior Notes and the 2025 Senior Notes and cash on hand were used to repurchase shares, all as discussed
below and in Item 8, note 8 and note 10 to the consolidated financial statements.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
We operate as a single segment that includes all of our continuing operations, which are designed to enable clients
to obtain tax preparation services seamlessly in our offices or through our DIY tax solutions. See discussion below and
in Item 8, note 17 to the consolidated financial statements.
DESCRIPTION OF BUSINESS
GENERAL – We provide assisted and DIY tax return preparation through multiple channels (including in-person, online
and mobile applications, and desktop software) and related services and products to the general public primarily in
the U.S., Canada, Australia, and their respective territories. Major revenue sources include fees earned for tax
preparation and related services performed at company-owned retail tax offices, royalties from franchisees, sales of
desktop tax preparation software, fees for online tax preparation services and fees from complementary services and
products. By offering professional assisted and DIY tax solutions through multiple channels, we seek to serve our
clients in the manner they choose to be served.
Tax Returns Prepared. During fiscal year 2016, 23.2 million tax returns were prepared by and through H&R Block
worldwide, a decline of 4.1% from 24.2 million tax returns in each of our fiscal years 2015 and 2014. In the U.S., 19.7