H&R BLOCK INC - FORM 8-K - EX-99.1 - PRESS RELEASE - September 1, 2011

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8-K - RESULTS OF OPERATIONS - H&R BLOCK INCform8k-090111.htm
Exhibit 99.1
 
News Release

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

H&R Block Reports Fiscal 2012 First Quarter Results

·  
First quarter net loss from continuing operations of $0.57 per share includes charges of $0.20 per share
·  
Adjusted non-GAAP net loss from continuing operations of $111.2 million, or $0.37 per share, compared to a loss of $110.8 million, or $0.35 per share in prior year
·  
Total revenues down 2.5 percent to $267.6 million

For Immediate Release: Sept. 1, 2011

KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today reported a net loss from continuing operations for the fiscal  first quarter ended July 31, 2011, of $173.4 million, or $0.57 per share, compared to a loss of $127.6 million, or $0.40 per share in the prior year period.  The company recorded after-tax charges of $62.2 million, or $0.20 per share, largely related to the pending sale of its RSM McGladrey (“RSM”) subsidiary.  The adjusted net loss from continuing operations of $111.2 million was essentially flat to the prior year.  The adjusted loss per share increased to $0.37 compared to a loss of $0.35 per share a year ago due to fewer shares outstanding.  Total revenues fell 2.5 percent to $267.6 million due to declining revenues at RSM.

“Our first quarter results were in-line with our expectations,” said Bill Cobb, H&R Block’s president and chief executive officer.   “As we finalize our plans for next tax season, we are confident that we can continue driving organic growth in our core business by attracting and retaining more clients.”

Tax Services

First quarter Tax Services revenues of $91.4 million were essentially flat to the prior year.  The segment’s pretax loss of $169.5 million improved by $5.1 million compared to the prior year.  Results included a pretax litigation charge of $15.0 million in the current quarter, and a pretax severance charge of $16.8 million in the prior year.

RSM McGladrey

As previously announced, H&R Block signed a non-binding letter of intent to sell substantially all of the assets of RSM to McGladrey & Pullen, LLP (“M&P”).   In connection with this sale, as well as the sale or closure of RSM’s remaining operations

 
 
 

that are not part of this transaction, the segment recorded a non-cash pretax charge of $89.7 million in the first quarter.

The sale of RSM is expected to close by calendar year end and is subject to a number of customary closing conditions, including the signing of a definitive agreement and finalization of M&P’s financing for the transaction.

First quarter revenues fell 4.3 percent to $167.3 million.   Due to the aforementioned charge, the pretax loss increased to $92.5 million compared to a loss of $0.4 million in the prior year.

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 $31.1 million for the first quarter ended July 31, 2011, compared to a loss of $32.3 million in the prior year.

Discontinued Operations
 
Sand Canyon Corporation (“SCC”), formerly 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.  SCC is a separate legal entity from H&R Block, Inc.  At July 31, 2011, SCC had net assets of approximately $300 million, in addition to an accrual for representation and warranty liabilities of $125.8 million.
 
New and reasserted claims for alleged breaches of representation and warranties in the principal amount of $35 million were received during the first quarter.  SCC completed a review of claims of approximately $48 million during the quarter, with incurred losses totaling $0.5 million.  At July 31, 2011, total claims of $66 million remain subject to review.

Conference Call

At 4:30 p.m. Eastern, the company will host a 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) 809-6980 or International (706) 634-7287
 
             Conference ID: 90488283
 
 
The call will also be webcast in a listen-only format for the media and public. The link to the webcast can be accessed on the company's investor relations Web site at www.hrblock.com
 
 
 A replay of the call will be available beginning at 6:30 p.m. Eastern on September 1 and continuing until September 15, 2011, by dialing (855) 859-2056 (U.S./Canada) or
 

 
 
 

 
(404) 537-3406 (International). The conference ID is 90488283. The webcast will be available for replay beginning on September 2.
 
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 2011 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) has prepared more than 575 million tax returns worldwide since 1955, making it the country’s largest tax services provider. In fiscal 2011, H&R Block had annual revenues of $3.8 billion and prepared more than 24.5 million tax returns worldwide, including Canada and Australia. Tax return preparation services are provided in company-owned and franchise retail tax offices by more than 100,000 professional tax preparers, and through H&R Block At Home™ digital products. H&R Block Bank provides affordable banking products and services, and RSM is a top provider of tax, accounting and wealth management services to mid-sized businesses. For more information, visit the H&R Block Online Press Center.
 
 
# # #



 
 
 

 
 
KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
 
   
Three months ended July 31,
   
Revenues
  
Income (loss)
   
2011
  
2010
  
2011
  
2010
                 
Tax Services
  
 $          91,425
 
 $          91,645
 
 $       (169,483)
  
 $       (174,624)
Business Services
  
           167,263
 
           174,710
 
            (92,541)
  
                (433)
Corporate and Eliminations
               8,946
 
               8,119
 
            (31,118)
  
            (32,260)
   
 $        267,634
 
 $        274,474
 
          (293,142)
  
          (207,317)
Income tax benefit
          
          (119,699)
  
            (79,679)
Net loss from continuing operations
      
          (173,443)
  
          (127,638)
Net loss from discontinued operations
      
              (1,655)
  
              (3,043)
Net loss
          
 $       (175,098)
  
 $       (130,681)
                 
Basic and diluted loss per share:
            
  Net loss from continuing operations
      
 $             (0.57)
  
 $             (0.40)
  Net loss from discontinued operations
      
                    -   
  
               (0.01)
  Net loss  
          
 $             (0.57)
  
 $             (0.41)
                 
Basic and diluted shares outstanding
      
           305,491
 
           319,690
 
 
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.
     In August 2011, we signed a non-binding letter of intent to sell substantially all assets of RSM McGladrey Business Services, Inc (RSM) to McGladrey & Pullen LLP (M&P) and began an evaluation of strategic alternatives for RSM EquiCo, Inc. (RSM EquiCo). The RSM sale is dependent on, among other factors, the ability of M&P to raise financing for the purchase. We recorded a $99.7 million impairment of goodwill in the first quarter for reporting units in our Business Services segment based on these events. This loss was offset partially by the sale of an ancillary business within the Business Services segment during the quarter which resulted in a $9.9 million gain. On an after-tax basis, the net result of these events is a charge of $53.2 million, or $0.17 per share. These amounts related to the sale of RSM may fluctuate based on adjustments to the purchase price at closing as well as the additional realization of tax benefits related to the sale.

 
 
 

 
CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except per share data
 
   
July 31,
  
April 30,
   
2011
 
2011
ASSETS
        
Current assets:
        
  Cash and cash equivalents
  
 $  1,012,709
 
 $  1,677,844
  Cash and cash equivalents - restricted
  
         44,402
 
         48,383
  Receivables, net
  
       329,388
 
       492,290
  Prepaid expenses and other current assets
  
       281,326
 
       259,214
    Total current assets
  
    1,667,825
 
    2,477,731
         
  Mortgage loans held for investment, net
  
       466,663
 
       485,008
  Property and equipment, net
  
       295,220
 
       307,320
  Intangible assets, net
  
       360,035
 
       367,919
  Goodwill
  
       742,611
 
       846,245
  Other assets
  
       775,698
 
       723,738
Total assets
  
 $  4,308,052
 
 $  5,207,961
         
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Current liabilities:
        
  Customer banking deposits
  
 $    666,268
 
 $    852,220
  Accounts payable, accrued expenses and other current liabilities
       522,130
 
       618,070
  Accrued salaries, wages and payroll taxes
 
         83,257
 
       257,038
  Accrued income taxes
  
       275,639
 
       458,910
  Current portion of long-term debt
  
         30,940
 
           3,437
  Federal Home Loan Bank borrowings
  
         25,000
 
         25,000
    Total current liabilities
  
    1,603,234
 
    2,214,675
         
Long-term debt
  
    1,019,431
 
    1,049,754
Other noncurrent liabilities
  
       451,510
 
       493,958
      Total liabilities
  
    3,074,175
 
    3,758,387
         
Stockholders' equity:
        
  Common stock, no par, stated value $.01 per share
 
           4,124
 
           4,124
  Additional paid-in capital
 
       808,668
 
       812,666
  Accumulated other comprehensive income
 
         12,692
 
         11,233
  Retained earnings   
  
    2,437,011
 
    2,658,103
  Less treasury shares, at cost
  
   (2,028,618)
  
   (2,036,552)
      Total stockholders' equity
  
    1,233,877
 
    1,449,574
Total liabilities and stockholders' equity
  
 $  4,308,052
 
 $  5,207,961

 
 
 

 
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
 
     
Three months ended July 31,
     
2011
 
2010
Revenues:
        
 
Service revenues
  
 $        240,563
 
 $        247,419
 
Product and other revenues
  
             16,638
 
             16,753
 
Interest income
  
             10,433
 
             10,302
     
           267,634
 
           274,474
           
Expenses:
        
 
Cost of revenues:
        
 
     Compensation and benefits
  
           160,255
 
           168,047
 
     Occupancy and equipment
  
             94,045
 
             94,702
 
     Depreciation and amortization of property and equipment
             21,048
 
             23,065
 
     Provision for bad debt and loan losses
  
               8,823
 
             10,049
 
     Interest
  
             23,301
 
             22,962
 
     Other expenses
  
             49,528
 
             49,191
     
           357,000
 
           368,016
 
Impairment of goodwill
  
             99,697
 
                    -   
 
Selling, general and administrative
  
           108,166
 
           117,029
     
           564,863
 
           485,045
           
Operating loss
  
          (297,229)
  
          (210,571)
Other income, net
  
               4,087
 
               3,254
           
Loss from continuing operations before tax benefit
  
          (293,142)
  
          (207,317)
Income tax benefit
  
          (119,699)
  
            (79,679)
           
Net loss from continuing operations
  
          (173,443)
  
          (127,638)
Net loss from discontinued operations
  
              (1,655)
  
              (3,043)
           
Net loss  
  
 $       (175,098)
  
 $       (130,681)
           
Basic and diluted loss per share:
        
 
   Net loss from continuing operations
  
 $             (0.57)
  
 $             (0.40)
 
   Net loss from discontinued operations
  
                    -   
  
               (0.01)
 
   Net loss  
  
 $             (0.57)
  
 $             (0.41)
           
 
Basic and diluted shares outstanding
  
           305,491
 
           319,690

 
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
 
             
Three months ended July 31,
             
2011
 
2010
                   
Net cash used in operating activities
  
 $      (394,549)
  
 $      (348,251)
                   
Cash flows from investing activities:
        
 
Purchases of available-for-sale securities
  
(39,275)
  
                   -   
 
Principal payments on mortgage loans held for investment, net
11,192
 
            17,618
 
Purchases of property and equipment
  
(10,953)
  
(8,634)
 
Payments made for business acquisitions, net of cash acquired
(3,457)
  
(33,226)
 
Proceeds from sales of businesses, net
  
21,230
 
26,387
 
Franchise loans:
        
   
Loans funded
  
(16,477)
  
(33,720)
   
Payments received
  
5,320
 
6,724
 
Other, net
  
18,167
 
18,848
   
Net cash used in investing activities
  
(14,253)
  
(6,003)
                   
Cash flows from financing activities:
        
 
Customer banking deposits, net
  
(186,245)
  
         (121,401)
 
Dividends paid
  
(45,894)
  
(48,692)
 
Repurchase of common stock, including shares surrendered
             (2,002)
  
         (164,369)
 
Proceeds from exercise of stock options
  
              1,762
 
              1,500
 
Other, net
  
(24,916)
  
(15,987)
     
Net cash used in financing activities
  
(257,295)
  
(348,949)
                   
Effects of exchange rates on cash
  
962
 
             (2,232)
                   
Net decrease in cash and cash equivalents
  
(665,135)
  
(705,435)
Cash and cash equivalents at beginning of the period
  
1,677,844
 
1,804,045
Cash and cash equivalents at end of the period
  
 $     1,012,709
 
 $     1,098,610
                   
Supplementary cash flow data:
        
 
Income taxes paid, net of refunds received
  
 $         99,357
 
 $         64,651
 
Interest paid on borrowings
  
37,634
 
27,265
 
Interest paid on deposits
  
1,820
 
              1,915
 
Transfers of foreclosed loans to other assets
  
              1,573
 
              6,527

 
 
 

 
NON-GAAP RECONCILIATION
Unaudited, amounts in thousands
 
     We report our financial results in accordance with generally accepted accounting principles (GAAP). However, we believe certain non-GAAP performance measures and ratios used in managing the business may provide additional meaningful comparisons between current year results and prior periods. Reconciliations to GAAP financial measures are provided below. These non-GAAP financial measures should be viewed in addition to, not as an alternative for, our reported GAAP results.
 
     
Three months ended July 31,
     
2011
 
2010
     
After-tax
Per share
  
After-tax
Per share
               
Net loss from continuing operations - as reported
 $         (173.4)
 $           (0.57)
  
 $         (127.6)
 $           (0.40)
               
Add back (net of tax):
            
 
Goodwill impairment
  
              59.2
              0.19
 
                  -   
                  -   
 
Gains on sales of businesses
 
               (6.0)
             (0.02)
  
                  -   
                  -   
 
Loss contingencies - litigation
  
                9.0
              0.03
 
                  -   
                  -   
 
Severance
  
                  -   
                  -   
  
              16.8
              0.05
     
              62.2
              0.20
 
              16.8
              0.05
               
Net loss from continuing operations - as adjusted
  
 $         (111.2)
 $           (0.37)
  
 $         (110.8)
 $           (0.35)
               
Basic and diluted shares
    
             305.5
   
             319.7
 
 

H&R BLOCK INC Reports