KANSAS CITY, MO. - H&R Block said it is continuing its negotiations with McGladrey & Pullen in an effort to convince the accounting firm to maintain a 10-year old agreement under which M&P and Block's RSM McGladrey jointly service clients, but noted it is talking to other audit and attest firms as possible replacements.
Legal arbitration is also continuing over certain provisions of the operating agreements that regulate the relationship.
M&P notified RSM McGladrey on July 21 that it intended to end the relationship. Block CEO Russ Smyth said that "We have been quite clear in our communications that we believe the firms are better off together and that this course set in motion by the ten member board of M&P is risky from both a business and a financial perspective and is not in the best interest of our partners, employees and clients."
Block also noted plans to become an active franchisor again by turning 300 company-owned stores into franchise operations.
Regarding the M&P relationships, Smyth also said Block has exchanged proposals with the accounting firms to address its concerns. These statements were made by Smyth in a conference call regarding the financial results for its July quarter. Despite his desire to preserve the alliance, he said Block is not dependent on M&P because "there are other audit and attest firms we can affiliate with to replace M&P should the need arise and we are pursuing those additional relationships at the same time we are in discussions with M&P." Smyth predicted the arbitration could last well into November.
Factors in the decision to sell the company stores to franchisees included the fact that franchised operations historically have grown faster than the company-owned stores. Smyth said that Block also sees opportunities for opening stores in the New York and Los Angeles areas because its penetration there is about half the national average. Smyth also predicted Block could get 400,000 to 500,000 additional tax clients through better execution. The economy called the chain to have its biggest client losses among the segments with lower adjusted gross incomes. To regain these, Block plans what Smyth called "targeted price value offers" during the next tax season.
For the most recent quarter, H&R Block lost $133.6 million, compared to $132.7 million in red ink a year earlier. Revenue for the most recently ended quarter was $275.5 million, up from $271.9 million a year ago.
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards. Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that. A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
