H&R BLOCK INC - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - CURRENT REPORT; EARNINGS - H&R BLOCK INC	form8k-030810.htm

Exhibit 99.1

News Release

H&R Block Reports Fiscal 2010 Third Quarter Results

·	Consolidated net income up 6.9% to $50.6 million, or $0.15 per share

·	Net income from continuing operations of $0.16 per share, down $0.04 to prior year

·	Total revenues decline 5.9% to $934.9 million

For Immediate Release March 8, 2010

KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today reported consolidated net income for the fiscal third quarter ended Jan. 31, 2010 of $50.6 million, or 15 cents per share, up 6.9 percent from the prior period of $47.4 million. Third quarter revenues declined 5.9 percent to $934.9 million, primarily driven by fewer tax returns prepared. Income from continuing operations of $53.6 million, or $0.16 per share1, fell 19.8 percent from $66.8 million, or $0.20 per share, in the prior year period.

“While we are disappointed with our early results this tax season, we remain committed to improving our performance as the remainder of the season unfolds. We expect to outperform our competitors regardless of the external factors like unemployment rates, but we have not done so to-date,” said Russ Smyth, President and Chief Executive Officer of H&R Block. “We continue to believe that our focus on increasing client satisfaction, improving the quality of our service, enhancing our value perception and continuing to reduce our cost structure is the right formula for success,” added Mr. Smyth.

Tax Services

Total segment revenues fell 6.2 percent year-over-year to $747.7 million, primarily reflecting a 7.1 percent decline in total retail tax returns prepared. Pretax income of $131.2 million for the third quarter was essentially flat compared with pretax income of $133.5 million a year ago, despite the decline in revenues.

Interim Tax Results through Feb. 28

1 All per share amounts are based on fully diluted shares

Based upon various industry-wide sources, the company believes that total IRS filings are down 4 to 5 percent through Feb. 28, partially due to weather-related slowness in February. The company anticipates that by the end of the tax season total IRS filings will decline approximately 2.5 to 3.5 percent over the prior year, or only approximately half the rate of decline seen in the period through Feb. 28. However, this decline would nonetheless be nearly double the company’s original estimate of lower returns.

The shift from assisted preparation to internet based or other do-it-yourself (DIY) tax preparation methods has accelerated in the early part of this tax season compared with previous years. Historically late season filers, who tend to have higher incomes, have shifted to DIY at a slower rate than early season filers.

For the fiscal 2010 tax season through Feb. 28, the company’s same-office tax returns prepared in retail operations fell 6.8 percent compared to the prior-year period. Total retail tax returns prepared through Feb. 28 were down 9.4 percent.

Digital returns2 prepared by H&R Block were down 4.4 percent, although online returns grew 2.5 percent. The aggregate number of digital returns including the Free File Alliance fell 3.8 percent. Software-based returns declined by 12.1 percent due to the company’s decision to exit two unprofitable distribution channels.

Total tax preparation revenues through Feb. 28 fell $124.1 million, or 7.1 percent over the comparable period in 2009. This reflects a 9.4 percent decline in total retail returns prepared, partially offset by the impact of an increase of 2.4 percent in net average fees per retail return.

“Our initiatives to improve service levels have resulted in stabilizing client retention levels through February after years of steady declines. However, our efforts to drive new client growth so far this year have not met our expectations,” said Mr. Smyth. “We are focused on improving our top line results for the remainder of the year, while we continue to reduce expenses. We have already demonstrated an ability to reduce our cost structure without negatively affecting client experience, and we believe we can continue to do even more in the future,” added Mr. Smyth.

RSM McGladrey

RSM McGladrey (“RSM”) reported a third quarter pretax loss of $11.2 million compared to pretax income of $10.7 million a year ago. The largest component of this change was due to a $15.0 million goodwill impairment related to RSM’s capital markets business.

Third quarter revenues fell $6.7 million, or 3.6 percent, compared to the prior year period. The drop in revenues mainly stems from the impact of the overall weak economic environment, which continues to pressure billable rates and hours within the industry.

2 “Digital returns” consist of online and desktop software products, excluding Free File Alliance returns.

In February, RSM and McGladrey & Pullen, LLP entered into new definitive agreements concerning their alternative practice structure, which renewed the long-standing business relationship between these two firms. This ends an uncertain period that had adversely affected RSM’s ability to participate in proposals for new client engagements. RSM also incurred legal and consulting expenses related to these negotiations of $3.3 million in the third quarter and $6.2 million fiscal year-to-date.

Corporate

Corporate operations includes corporate support department costs, such as finance and legal, as well as net interest margin and other gains/losses associated with H&R Block Bank’s declining mortgage portfolio. For the third quarter ended Jan. 31, 2010, Corporate operations reported a pretax loss of $22.5 million, compared to a loss of $42.4 million in the prior year. This represented an improvement of nearly 47 percent. Reduced expenses in the fiscal third quarter included reductions in self-insured liabilities, lower interest expense on corporate borrowings and reduced loss provisions on mortgage loans held for investment.

Share Repurchases and Financing Developments

The company repurchased and retired 6.8 million shares during the third quarter at an aggregate price of $150.0 million. On March 4, the Company closed a new $1.7 billion committed line of credit (“CLOC“) with a consortium of banks led by Bank of America, N.A., Wells Fargo Bank, N.A. and BNP Paribas. This facility replaces the company’s prior aggregate $2 billion CLOCs and will mature in July, 2013. The $650 million quarter-end net worth covenant remains unchanged. Full details concerning the terms of the new CLOC will be included in the company’s Form 10-Q for the third quarter of fiscal 2010.

Conference Call

At 4:30 p.m. EST today, the company will host its fiscal third quarter conference call for analysts, institutional investors and shareholders. To access the call, please dial the number below approximately five to 10 minutes prior to the scheduled starting time:

U.S./Canada (877) 247-6355 or International (706) 679-0371

Conference ID: 57298613

The call also will be webcast in a listen-only format for the media and public. The link to the webcast can be accessed directly at http://investor-relations.hrblock.com.

A replay of the call will be available beginning at 6 p.m. EST on March 8, and continuing until March 30, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (international). The conference ID is 57298613. The webcast will be available for replay beginning on March 9 at http://investor-relations.hrblock.com

Forward Looking Statements

This announcement may contain forward-looking statements, which are any statements that are not historical facts. These forward-looking statements, as well as the Company’s guidance, are based upon the Company’s current expectations and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties and speak only as of the date on which they are made, the Company’s actual results could differ materially from these statements. These risks and uncertainties relate to, among other things, uncertainties regarding the Company’s ability to attract and retain clients; meet its prepared returns targets; uncertainties and potential contingent liabilities arising from our former mortgage loan origination and servicing business; uncertainties in the residential mortgage market and its impact on loan loss provisions; uncertainties pertaining to the commercial debt market; competitive factors; the Company’s effective income tax rate; litigation; uncertainties regarding the level of share repurchases; and changes in market, economic, political or regulatory conditions. Information concerning these risks and uncertainties is contained in Item 1A of the Company’s 2009 annual report on Form 10-K and in other filings by the Company with the Securities and Exchange Commission. The Company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

About H&R Block

H&R Block Inc. (NYSE: HRB) is the world’s preeminent tax services provider, having prepared more than 500 million tax returns since 1955. In fiscal 2009, H&R Block had annual revenues of $4.1 billion and prepared more than 24 million tax returns worldwide, utilizing more than 100,000 highly trained tax professionals. The Company provides tax return preparation services in person, through H&R Block At Home™ online and desktop software products, and through other channels. The Company is also one of the leading providers of business services through RSM McGladrey. For more information, visit our Online Press Center at www.hrblock.com.

For Further Information

Investor Relations Derek Drysdale, 816. 854.4513, derek.drysdale@hrblock.com

Media Relations Gene King, 816.854.4672, gene.king@hrblock.com

TABLE FOLLOWS

KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data

	Three months ended January 31,
	Revenues				Income (loss)
	2010		2009		2010			2009

Tax Services	$	747,685	$	796,866	$	131,189		$	133,473
Business Services		178,482		185,177		(11,222	)		10,695
Corporate and Eliminations		8,685		11,403		(22,516	)		(42,429	)
	$	934,852	$	993,446		97,451			101,739
Income tax						43,848			34,909
Net income from continuing operations						53,603			66,830
Net loss from discontinued operations						(2,968	)		(19,467	)
Net income					$	50,635		$	47,363

Basic earnings (loss) per share:
Net income from continuing operations					$	0.16		$	0.20
Net loss from discontinued operations						(0.01	)		(0.06	)
Net income					$	0.15		$	0.14

Basic shares outstanding						332,999			337,338

Diluted earnings (loss) per share:
Net income from continuing operations					$	0.16		$	0.20
Net loss from discontinued operations						(0.01	)		(0.06	)
Net income					$	0.15		$	0.14

Diluted shares outstanding						334,297			338,687


	Nine months ended January 31,
	Revenues				Income (loss)
		2010		2009		2010			2009

Tax Services	$	944,953	$	983,300	$	(212,973	)	$	(218,309	)
Business Services		562,702		592,873		(9,727	)		23,481
Corporate and Eliminations		28,783		40,651		(103,575	)		(143,856	)
	$	1,536,438	$	1,616,824		(326,275	)		(338,684	)
Income tax benefit						(122,789	)		(143,930	)
Net loss from continuing operations						(203,486	)		(194,754	)
Net loss from discontinued operations						(8,100	)		(26,476	)
Net loss					$	(211,586	)	$	(221,230	)

Basic and diluted loss per share:
Net loss from continuing operations					$	(0.61	)	$	(0.59	)
Net loss from discontinued operations						(0.02	)		(0.08	)
Net loss					$	(0.63	)	$	(0.67	)

Basic and diluted shares outstanding						334,293			331,429

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basic earnings per share is computed using the two-class method and is based on the weighted average number of shares outstanding. The dilutive effect of potential common shares is included in diluted earnings per share, except in those periods with a loss from continuing operations.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Effective May 1, 2009, we realigned certain segments of our business to reflect a new management reporting structure. The operations of H&R Block Bank, which were previously reported as the Consumer Financial Services segment, have now been reclassified, with activities that support our retail tax network included in the Tax Services segment, and income and expenses of our static portfolio of mortgage loans held for investment and related assets included in Corporate. These reclassifications had no effect on our total operating expenses, results of operations or stockholders’ equity as previously reported.

CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except per share data

	January 31,			January 31,			April 30,
	2010			2009			2009
ASSETS
Current assets:
Cash and cash equivalents	$	1,727,677		$	1,269,203		$	1,654,663
Cash and cash equivalents - restricted		85,313			75,893			51,656
Receivables, net		2,566,830			2,642,951			512,814
Prepaid expenses and other current assets		344,922			425,042			351,947
Total current assets		4,724,742			4,413,089			2,571,080

Mortgage loans held for investment, net		641,157			781,755			744,899
Property and equipment, net		362,170			383,704			368,289
Intangible assets, net		371,951			394,106			385,998
Goodwill		843,054			848,443			850,230
Other assets		467,055			480,795			439,226
Total assets	$	7,410,129		$	7,301,892		$	5,359,722

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings	$	1,675,094		$	690,485		$	-
Customer banking deposits		2,220,501			2,115,708			854,888
Accounts payable, accrued expenses and other current liabilities		756,501			734,755			705,945
Accrued salaries, wages and payroll taxes		182,151			206,959			259,698
Accrued income taxes		118,079			143,791			543,967
Current portion of long-term debt		2,576			9,030			8,782
Current Federal Home Loan Bank borrowings		25,000			104,000			25,000
Total current liabilities		4,979,902			4,004,728			2,398,280

Long-term debt		1,032,800			2,002,647			1,032,122
Long-term Federal Home Loan Bank borrowings		75,000			-			75,000
Other noncurrent liabilities		385,960			454,512			448,461
Total liabilities		6,473,662			6,461,887			3,953,863

Stockholders' equity:
Common stock, no par, stated value $.01 per share		4,374			4,442			4,442
Additional paid-in capital		826,503			835,329			836,477
Accumulated other comprehensive income (loss)		1,086			(16,614	)		(11,639	)
Retained earnings		2,162,406			2,015,650			2,671,437
Less treasury shares, at cost		(2,057,902	)		(1,998,802	)		(2,094,858	)
Total stockholders' equity		936,467			840,005			1,405,859
Total liabilities and stockholders' equity	$	7,410,129		$	7,301,892		$	5,359,722

CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data

	Three months ended January 31,						Nine months ended January 31,
	2010			2009			2010			2009
Revenues:
Service revenues	$	744,327		$	799,687		$	1,287,270		$	1,356,744
Product and other revenues		142,179			135,155			176,422			166,582
Interest income		48,346			58,604			72,746			93,498
		934,852			993,446			1,536,438			1,616,824

Operating expenses:
Cost of revenues		645,747			684,567			1,443,146			1,489,652
Selling, general and administrative		194,661			208,814			427,563			464,054
		840,408			893,381			1,870,709			1,953,706

Operating income (loss)		94,444			100,065			(334,271	)		(336,882	)
Other income (expense), net		3,007			1,674			7,996			(1,802	)

Income (loss) from continuing operations before taxes (benefit)		97,451			101,739			(326,275	)		(338,684	)
Income taxes (benefit)		43,848			34,909			(122,789	)		(143,930	)

Net income (loss) from continuing operations		53,603			66,830			(203,486	)		(194,754	)
Net loss from discontinued operations		(2,968	)		(19,467	)		(8,100	)		(26,476	)

Net income (loss)	$	50,635		$	47,363		$	(211,586	)	$	(221,230	)

Basic earnings (loss) per share:
Net income (loss) from continuing operations	$	0.16		$	0.20		$	(0.61	)	$	(0.59	)
Net loss from discontinued operations		(0.01	)		(0.06	)		(0.02	)		(0.08	)
Net income (loss)	$	0.15		$	0.14		$	(0.63	)	$	(0.67	)

Basic shares outstanding		332,999			337,338			334,293			331,429

Diluted earnings (loss) per share:
Net income (loss) from continuing operations	$	0.16		$	0.20		$	(0.61	)	$	(0.59	)
Net loss from discontinued operations		(0.01	)		(0.06	)		(0.02	)		(0.08	)
Net income (loss)	$	0.15		$	0.14		$	(0.63	)	$	(0.67	)

Diluted shares outstanding		334,297			338,687			334,293			331,429

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands

	Nine months ended January 31,
	2010			2009

Net cash used in operating activities	$	(2,729,047	)	$	(2,423,562	)

Cash flows from investing activities:
Principal payments on mortgage loans held for investment, net		56,114			72,150
Purchases of property and equipment		(63,242	)		(73,913	)
Payments made for business acquisitions, net of cash acquired		(10,828	)		(290,868	)
Proceeds from sale of businesses, net		66,760			11,556
Net cash provided by investing activities of discontinued operations		-			255,066
Other, net		22,370			12,283
Net cash provided by (used in) investing activities		71,174			(13,726	)

Cash flows from financing activities:
Repayments of Federal Home Loan Bank borrowings		-			(40,000	)
Proceeds from Federal Home Loan Bank borrowings		-			15,000
Repayments of short-term borrowings		(982,774	)		(888,983	)
Proceeds from short-term borrowings		2,657,436			2,550,281
Customer banking deposits		1,365,163			1,326,584
Dividends paid		(151,317	)		(147,569	)
Repurchase of common stock, including shares surrendered		(154,201	)		(7,387	)
Proceeds from exercise of stock options		15,678			69,891
Proceeds from issuance of common stock, net		-			141,450
Net cash provided by financing activities of discontinued operations		-			4,783
Other, net		(29,434	)		17,544
Net cash provided by financing activities		2,720,551			3,041,594

Effects of exchange rates on cash		10,336			-

Net increase in cash and cash equivalents		73,014			604,306
Cash and cash equivalents at beginning of the period		1,654,663			664,897
Cash and cash equivalents at end of the period	$	1,727,677		$	1,269,203

Supplementary cash flow data:
Income taxes paid (refunds received), net	$	269,774		$	(13,006	)
Interest paid on borrowings		61,118			70,891
Interest paid on deposits		8,654			11,484
Transfers of loans to foreclosed assets		12,689			62,774

Interim U.S. Tax Operating Data
(amounts in thousands, except net average fee)

	Tax Season YTD 1/31 2010		Tax Season YTD 1/31 2009		Percent change			Tax Season YTD 2/28 2010		Tax Season YTD 2/28 2009		Percent change
Net tax preparation fees - retail: (2)
Company-owned operations	$	469,911	$	498,470		-5.7	%	$	1,060,980	$	1,159,444		-8.5	%
Franchise operations		244,184		251,818		-3.0	%		554,908		580,539		-4.4	%
Total retail operations	$	714,095	$	750,288		-4.8	%	$	1,615,888	$	1,739,983		-7.1	%

Total returns prepared: (1)
Company-owned operations		2,292		2,467		-7.1	%		5,380		5,995		-10.3	%
Franchise operations		1,347		1,451		-7.2	%		3,186		3,455		-7.8	%
Total retail operations		3,639		3,918		-7.1	%		8,566		9,450		-9.4	%

Digital software		635		780		-18.6	%		1,364		1,551		-12.1	%
Digital online		719		643		11.8	%		1,786		1,743		2.5	%
Sub-total		1,354		1,423		-4.8	%		3,150		3,294		-4.4	%
Digital Free File Alliance		201		178		12.9	%		501		502		-0.2	%
Total digital tax solutions		1,555		1,601		-2.9	%		3,651		3,796		-3.8	%
		5,194		5,519		-5.9	%		12,217		13,246		-7.8	%
Net average fee - retail: (1,3)
Company-owned operations	$	205.06	$	202.15		1.4	%	$	197.21	$	193.60		1.9	%
Franchise operations		181.20		173.60		4.4	%		174.17		168.08		3.6	%
Total retail operations	$	196.23	$	191.58		2.4	%	$	188.64	$	184.26		2.4	%

Same-office tax preparation fees: (1,4)
Company-owned operations	$	466,519	$	482,530		-3.3	%	$	1,048,437	$	1,106,147		-5.2	%
Franchise operations		235,255		241,323		-2.5	%		531,652		551,339		-3.6	%
Total retail operations	$	701,774	$	723,853		-3.1	%	$	1,580,089	$	1,657,486		-4.7	%

Same-office returns prepared: (1,4)
Company-owned operations		2,249		2,335		-3.7	%		5,306		5,692		-6.8	%
Franchise operations		1,292		1,376		-6.1	%		3,055		3,278		-6.8	%
Total retail operations		3,541		3,711		-4.6	%		8,361		8,970		-6.8	%

(1)	Prior year numbers have been reclassified between company-owned and franchise operations for offices which were refranchised during either year.
(2)	Amounts include gross tax preparation fees less coupons and discounts.
(3)	Amounts are calculated as net retail tax preparation fees divided by retail tax returns.
(4)	Same-office returns represent returns prepared at 6,978 company and 3,871 franchise offices open in both fiscal year 2010 and fiscal year 2009.

H&R BLOCK INC - FORM 8-K - EX-99.1 - PRESS RELEASE - March 8, 2010

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H&R BLOCK INC Reports