H&R BLOCK INC - FORM 8-K - EX-99.1 - PRESS RELEASE - December 7, 2010

Attached files

file filename
8-K - CURRENT REPORT; EARNINGS - H&R BLOCK INCform8k-120710.htm
Exhibit 99.1
 
 
News Release

H&R Block Reports Fiscal 2011 Second Quarter Results

·  
Net loss from continuing operations of $0.35 per share, compared to prior-year loss of $0.38 per share*
·  
Consolidated net loss of $0.36 per share, compared to a loss of $0.38 per share in prior year
·  
Total revenues down 1.0 percent to prior year

For Immediate Release:  Dec. 7, 2010

KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today reported a net loss from continuing operations for the fiscal second quarter ended Oct. 31, 2010, of $106.8 million, or $0.35 per share compared to a loss of $126.5 million, or $0.38 per share in the second quarter a year ago.  H&R Block typically reports a second quarter operating loss due to the seasonality of its business.   The consolidated net loss was $109.0 million, or $0.36 per share, compared to a loss of $128.6 million, or $0.38 per share, in the prior year period.  Total revenues were down 1.0 percent from the prior year to $322.9 million.

“Our second quarter results met our expectations and we are aggressively preparing for the key second half of our fiscal year,” said Alan Bennett, president and chief executive officer of H&R Block. “Reversing our early-season client losses is our top priority and we will take strong actions to drive more traffic into our offices,” added Bennett.

For the six months ended Oct. 31, 2010, H&R Block reported a net loss from continuing operations of $234.5 million, or $0.75 per share, compared with a loss of $257.1 million, or $0.77 cents per share, for the same period of fiscal 2010.  Six-month revenues were $597.4 million in fiscal 2011 versus $601.6 million in the prior year.  Discontinued operations in the first half of fiscal 2011 recorded a loss of $5.3 million, or $0.02 per share, essentially flat to the prior year.

Tax Services

Second quarter Tax Services revenues grew 1.5 percent year-over-year to $110.9 million.  The segment reported a pretax loss of $154.4 million compared to a loss of $172.2 million a year ago.  Total expenses fell by $16.2 million, or 5.8 percent, primarily as a result of staff reductions and the closing of certain underperforming retail office locations.


 
* All per share amounts are based on fully diluted shares.

 
1
 

For the first six months of fiscal 2011, Tax Services revenues of $202.6 million were up 2.7 percent from $197.3 million last year.  The pretax loss of $329.0 million compares with a loss of $344.2 million in the year-ago period.

RSM McGladrey

Second quarter revenues fell 1.5 percent year-over-year to $203.4 million. The segment reported pretax income of $8.4 million compared to pretax income of $0.2 million a year ago.  Total expenses fell $11.4 million, or 5.5 percent, primarily due to reduced compensation in the current year period and litigation costs incurred in the prior year period.

Six-month segment revenues were $378.1 million, down 1.6 percent from $384.2 million in last year’s period.  Pretax income for the first six months of fiscal 2011 was $8.0 million, compared to income of $1.5 million in the prior-year period.

Corporate

Corporate includes 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 mortgage portfolio. Corporate reported a pretax loss of $29.2 million for the second quarter ended Oct. 31, 2010, compared to a loss of $40.8 million in the prior year. Lower losses were due to reduced loss provisions on mortgage loans held for investment and corporate expense reductions.

For the first six months of fiscal 2011, a pretax loss of $61.4 million compares with a loss of $81.1 million in the year-ago period.

Net mortgage loans held for investment declined 20 percent from $671.0 million at Oct.. 31, 2009 to $537.2 million at Oct. 31, 2010.  Loss provisions on mortgage loans totaled $8.3 million during the quarter ended Oct. 31, 2010, a decline of $5.1 million compared with the prior year quarter.   Losses were lower due to a combination of declining delinquency rates and stabilizing home prices.  The loan loss allowance was $87.6 million, or 14.1 percent of outstanding principal at Oct. 31, 2010 compared to $96.0 million or 12.6 percent at Oct. 31, 2009.

Discontinued Operations

Sand Canyon Corporation (“SCC”, previously known as Option One Mortgage Corporation) ceased originating mortgage loans in December 2007 and, in April 2008, sold its servicing assets and discontinued its remaining operations.

During the second quarter ended Oct. 31, 2010, SCC received new claims for alleged breaches of representations and warranties in the total principal amount of $21 million, compared with $83 million in the prior year quarter.  Actual losses on representation and warranty claims totaled $3.4 million during the quarter ended Oct.31, 2010.


 
2
 

From May 1, 2008 through October 31, 2010, SCC has received cumulative repurchase claims totaling $707 million in unpaid principal and incurred net losses of approximately $58 million.  At Oct. 31, 2010, SCC’s reserve for estimated losses on contingent mortgage loan repurchase obligations totaled $184.7 million.  Claim activity and associated losses remain within SCC’s reserved expectations.

Share Repurchases & Dividends
 
The company repurchased and retired 3.5 million shares in the fiscal second quarter at a cost of $44.3 million.  A previously announced quarterly cash dividend of 15 cents per share is payable Jan. 3, 2011, to shareholders of record Dec. 13, 2010.

Conference Call

At 4:30 p.m. Eastern time today, the company will host a conference call for analysts, institutional investors and shareholders. To access the call, please dial the number below approximately 5 to 10 minutes prior to the scheduled starting time:

             U.S./Canada (877) 809-6980 or International (706) 758-0071
             Conference ID: 26450535

The call will also 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 5:30 p.m. Eastern time on Dec. 7, and continuing until Jan. 1, 2011, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International).  The conference ID is 26450535.  The webcast will be available for replay beginning on Dec. 8 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 defense expenses and costs of judgments or settlements; 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 2010 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.


 
3
 

About H&R Block
H&R Block Inc. (NYSE: HRB) is one of the world’s largest tax services providers, having prepared more than 550 million tax returns worldwide since 1955. In fiscal 2010, H&R Block had annual revenues of $3.9 billion and prepared more than 23 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:                                           Jennifer Love, (816) 854-4448, jennifer.love@hrblock.com
 
# # #


 
4
 


KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
 
   
Three months ended October 31,
   
Revenues
  
Income (loss)
   
2010
  
2009
  
2010
  
2009
                 
Tax Services
  
 $        110,921
 
 $        109,305
 
 $       (154,355)
  
 $       (172,188)
Business Services
  
           203,426
 
           206,602
 
               8,397
 
                 174
Corporate and Eliminations
               8,542
 
             10,174
 
            (29,161)
  
            (40,839)
   
 $        322,889
 
 $        326,081
 
          (175,119)
  
          (212,853)
Income tax benefit
          
            (68,307)
  
            (86,381)
Net loss from continuing operations
      
          (106,812)
  
          (126,472)
Net loss from discontinued operations
      
              (2,237)
  
              (2,115)
Net loss  
          
 $       (109,049)
  
 $       (128,587)
                 
Basic and diluted earnings (loss) per share:
        
  Net loss from continuing operations
      
 $             (0.35)
  
 $             (0.38)
  Net loss from discontinued operations
      
               (0.01)
  
                    -   
  Net loss
          
 $             (0.36)
  
 $             (0.38)
                 
Basic and diluted shares outstanding
      
           306,804
 
           335,346
                 
                 
   
Six months ended October 31,
   
Revenues
  
Income (loss)
   
2010
  
2009
  
2010
  
2009
                 
Tax Services
  
 $        202,566
 
 $        197,268
 
 $       (328,979)
  
 $       (344,162)
Business Services
  
           378,136
 
           384,220
 
               7,964
 
               1,495
Corporate and Eliminations
             16,661
 
             20,098
 
            (61,421)
  
            (81,059)
   
 $        597,363
 
 $        601,586
 
          (382,436)
  
          (423,726)
Income tax benefit
          
          (147,986)
  
          (166,637)
Net loss from continuing operations
      
          (234,450)
  
          (257,089)
Net loss from discontinued operations
      
              (5,280)
  
              (5,132)
Net loss  
          
 $       (239,730)
  
 $       (262,221)
                 
Basic and diluted earnings (loss) per share:
        
  Net loss from continuing operations
      
 $             (0.75)
  
 $             (0.77)
  Net loss from discontinued operations
      
               (0.02)
  
               (0.01)
  Net loss
          
 $             (0.77)
  
 $             (0.78)
                 
Basic and diluted shares outstanding
      
           313,247
 
           334,939
 
 
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.

 
 
 

CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except per share data
 
   
October 31,
  
October 31,
  
April 30,
   
2010
 
2009
 
2010
ASSETS
            
Current assets:
            
  Cash and cash equivalents
  
 $    959,746
 
 $  1,432,243
 
 $  1,804,045
  Cash and cash equivalents - restricted
  
         35,473
 
         46,072
 
         34,350
  Receivables, net
  
       416,333
 
       461,485
 
       517,986
  Prepaid expenses and other current assets
  
       324,014
 
       361,186
 
       292,655
    Total current assets
  
    1,735,566
 
    2,300,986
 
    2,649,036
             
  Mortgage loans held for investment, net
  
       537,226
 
       671,049
 
       595,405
  Property and equipment, net
  
       327,881
 
       351,288
 
       345,470
  Intangible assets, net
  
       373,324
 
       378,112
 
       367,432
  Goodwill
  
       867,417
 
       856,880
 
       840,447
  Other assets
  
       466,368
 
       409,044
 
       436,528
Total assets
  
 $  4,307,782
 
 $  4,967,359
 
 $  5,234,318
             
LIABILITIES AND STOCKHOLDERS' EQUITY
            
Current liabilities:
            
  Customer banking deposits
  
 $    929,898
 
 $  1,493,726
 
 $    852,555
  Accounts payable, accrued expenses and other current liabilities
       660,999
 
       608,149
 
       756,577
  Accrued salaries, wages and payroll taxes
 
         81,163
 
         83,321
 
       199,496
  Accrued income taxes
  
       151,708
 
       169,004
 
       459,175
  Current portion of long-term debt
  
           3,407
 
           3,667
 
           3,688
  Commercial paper borrowings
  
         39,517
 
                -   
  
                -   
  Current Federal Home Loan Bank borrowings
  
         50,000
 
         25,000
 
         50,000
    Total current liabilities
  
    1,916,692
 
    2,382,867
 
    2,321,491
             
Long-term debt
  
    1,041,103
 
    1,032,562
 
    1,035,144
Long-term Federal Home Loan Bank borrowings
  
         25,000
 
         75,000
 
         25,000
Other noncurrent liabilities
  
       445,182
 
       405,833
 
       412,053
      Total liabilities
  
    3,427,977
 
    3,896,262
 
    3,793,688
             
Stockholders' equity:
            
  Common stock, no par, stated value $.01 per share
 
           4,124
 
           4,442
 
           4,314
  Additional paid-in capital
 
       810,403
 
       827,423
 
       832,604
  Accumulated other comprehensive income (loss)
  
           2,757
 
               66
 
           1,678
  Retained earnings   
  
    2,104,050
 
    2,308,153
 
    2,658,586
  Less treasury shares, at cost
  
   (2,041,529)
  
   (2,068,987)
  
   (2,056,552)
      Total stockholders' equity
  
       879,805
 
    1,071,097
 
    1,440,630
Total liabilities and stockholders' equity
  
 $  4,307,782
 
 $  4,967,359
 
 $  5,234,318

 
 
 

CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
 
     
Three months ended October 31,
  
Six months ended October 31,
     
2010
 
2009
 
2010
 
2009
Revenues:
                
 
Service revenues
  
 $        296,139
 
 $        294,958
 
 $        543,558
 
 $        542,943
 
Interest income
  
             10,635
 
             12,113
 
             20,937
 
             24,400
 
Product and other revenues
  
             16,115
 
             19,010
 
             32,868
 
             34,243
     
           322,889
 
           326,081
 
           597,363
 
           601,586
                   
Operating expenses:
                
 
Cost of revenues
  
           392,950
 
           410,949
 
           760,966
 
           797,399
 
Selling, general and administrative
  
           108,943
 
           129,685
 
           225,972
 
           232,902
     
           501,893
 
           540,634
 
           986,938
 
        1,030,301
                   
Operating loss  
  
          (179,004)
  
          (214,553)
  
          (389,575)
  
          (428,715)
Other income, net
  
               3,885
 
               1,700
 
               7,139
 
               4,989
                   
Loss from continuing operations before tax benefit
          (175,119)
  
          (212,853)
  
          (382,436)
  
          (423,726)
Income tax benefit
  
            (68,307)
  
            (86,381)
  
          (147,986)
  
          (166,637)
                   
Net loss from continuing operations
  
          (106,812)
  
          (126,472)
  
          (234,450)
  
          (257,089)
Net loss from discontinued operations
  
              (2,237)
  
              (2,115)
  
              (5,280)
  
              (5,132)
                   
Net loss
 
 $       (109,049)
  
 $       (128,587)
  
 $       (239,730)
  
 $       (262,221)
                   
Basic and diluted earnings (loss) per share:
              
 
Net loss from continuing operations
  
 $             (0.35)
  
 $             (0.38)
  
 $             (0.75)
  
 $             (0.77)
 
Net loss from discontinued operations
  
               (0.01)
  
                    -   
  
               (0.02)
  
               (0.01)
 
Net loss
 
 $             (0.36)
  
 $             (0.38)
  
 $             (0.77)
  
 $             (0.78)
                   
 
Basic and diluted shares outstanding
  
           306,804
 
           335,346
 
           313,247
 
           334,939

 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands

             
Six months ended October 31,
             
2010
 
2009
                   
Net cash used in operating activities
  
 $      (548,001)
  
 $      (786,152)
                   
Cash flows from investing activities:
        
 
Principal payments on mortgage loans held for investment, net
30,829
 
            38,693
 
Purchases of property and equipment, net
  
(35,005)
  
(7,280)
 
Payments made for business acquisitions, net
  
(43,310)
  
(6,606)
 
Other, net
  
30,851
 
18,473
   
Net cash provided by (used in) investing activities
  
(16,635)
  
43,280
                   
Cash flows from financing activities:
        
 
Repayments of short-term borrowings
  
(75,000)
  
                   -   
 
Proceeds from short-term borrowings
  
114,490
 
                   -   
 
Customer banking deposits
  
77,023
 
          638,466
 
Dividends paid
  
(95,068)
  
(100,784)
 
Repurchase of common stock, including shares surrendered
         (283,470)
  
             (3,785)
 
Proceeds from exercise of stock options
  
              1,493
 
              8,218
 
Other, net
  
(21,352)
  
(30,884)
     
Net cash provided by (used in) financing activities
  
(281,884)
  
511,231
                   
Effects of exchange rates on cash
  
2,221
 
              9,221
                   
Net decrease in cash and cash equivalents
  
(844,299)
  
(222,420)
Cash and cash equivalents at beginning of the period
  
1,804,045
 
1,654,663
Cash and cash equivalents at end of the period
  
 $       959,746
 
 $     1,432,243
                   
Supplementary cash flow data:
        
 
Income taxes paid
  
 $       103,803
 
 $       196,427
 
Interest paid on borrowings
  
30,933
 
37,304
 
Interest paid on deposits
  
3,828
 
              4,134
 
Transfers of loans to foreclosed assets
  
            11,185
 
              9,212
 
 




H&R BLOCK INC Reports