H&R Block, the Kansas City-based tax, business and financial services company, said this morning (April 20) that it had entered an agreement to sell its Option One suprime mortgage unit to a newly formed company affiliated with Cerberus Capital Management.
The sale, which the company expects would not close until fall, would net H&R Block the "value of the tangible net assets of the business at the date of closing, less $300 million." At Jan. 31, 2007, the tangible net assets of Option One were $1.27 billion.
The company disclosed late yesterday that it would post a net loss for its current fiscal year as a result of conditions in the subprime mortgage market. In an 8K filing with the Securities and Exchange Commission, H&R Block stated that it will record a non-cash, pre-tax impairment charge in the fourth quarter ending April 30, 2007 that would be "materially greater than OOMC¹s goodwill which is $152.5 million." The company further stated that "a net loss is expected for fiscal year 2007 on a fully reported basis as a result of the impairment charges described in this Current Report on Form 8-K and the conditions in the subprime mortgage industry."
In a statement announcing the sale, H&R Block said, "In connection with the transaction, the company expects to incur a non-cash pretax charge for impairment of its investment in Option One of approximately $290 million to $320 million, to be recorded in its fiscal 2007 fourth quarter. The charge consists of impairments to various assets, primarily goodwill and property, plant and equipment."
The company also said it would cease operations of Option One subsidiary H&R Block Mortgage Co., incurring pretax charges of $31 million, but would continue to provide its retail tax and other clients with prime residential mortgage loans through H&R Block Bank, which began operations in May 2006.
Option One is the nation's third largest maker of subprime mortgages with a market share of 6.5%, according to an analysis by the Mortgage Bankers Association and UBS.