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8-K - EARNINGS - H&R BLOCK INCform8k-030712.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 Interim U.S. Tax Results Through Feb. 28; Fiscal 2012 Third Quarter Results Ended Jan. 31

Interim tax results through Feb. 28
·  
Total tax returns prepared grow 5.1 percent
·  
Total retail returns prepared up 1.6 percent
·  
Total online1returns prepared increase more than 20 percent; total digital returns up nearly 13 percent
·  
Total H&R Block Emerald Prepaid MasterCard® units up 22 percent to 2.6 million

Fiscal third quarter results ended Jan. 31
·  
Net loss from continuing operations of $3.6 million, or $0.01 per share2, compared to prior year loss of $11.0 million, or $0.04 per share
·  
Total revenues down 2.5 percent to $663.3 million
·  
Minimum equity covenant on company’s committed line of credit lowered by $150 million to $500 million

For Immediate Release March 7, 2012

KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today released interim period U.S. tax results through Feb. 28, 2012.  Total U.S. tax returns prepared fiscal year-to-date through Feb. 28 grew 5.1 percent compared to the prior year.  Total retail returns prepared increased 1.6 percent for the comparable period. Total digital tax returns increased 12.6 percent, including a 20.4 percent increase in online filings.

“With the first half of the tax season now behind us, I am pleased by the 5 percent growth in U.S. tax returns prepared to date,” said Bill Cobb, H&R Block’s president and chief executive officer. “We continue to work to position the company for long-term growth in revenue and earnings.”

Fiscal Third Quarter Results

The company also reported fiscal third quarter results ended Jan. 31, 2012.  The company reported a net loss from continuing operations of $3.6 million, or $0.01 per share for the quarter, compared to a loss of $11.0 million, or $0.04 per share in the prior year period.  Total revenues fell 2.5 percent to $663.3 million.

1Total online returns prepared exclude software-based and Free File Alliance (“FFA”) returns.
2All per share amounts are based on fully diluted shares.

 
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Due to the seasonality of its Tax Services business segment, the company normally reports an operating loss for the first nine months of its fiscal year.  For the nine months ended Jan. 31, 2012, the company reported a net loss from continuing operations of $245.7 million, or $0.82 per share, compared with a prior year loss of $250.3 million, or $0.80 cents per share.  Nine-month revenues fell 0.7 percent to $893.1 million.

Tax Services

Total segment revenues for the third quarter ended Jan. 31, declined 2.5 percent year-over-year to $655.7 million.  Tax preparation and related revenues through Jan. 31 increased 10.0 percent, or $48.5 million, due to growth in total tax returns prepared.

Higher tax preparation revenues were offset by a decline in financial product revenues.  In line with the company’s continued focus on attracting and retaining clients through value offerings, refund anticipation checks (“RACs”) were offered free to clients electing to deposit their refund on an H&R Block Emerald Prepaid MasterCard®.  This promotion, which expired on Feb. 4, resulted in a significant increase in Emerald Card units from tax preparation clients through Jan. 31, but a decline of $30.3 million in quarterly RAC revenues.  The company also changed its underwriting criteria for its Emerald Advance program in fiscal 2012.  While this change led to a $16.1 million decline in interest income, associated credit losses fell by $36.6 million compared to the prior year.  Prior year results also included $16.3 million of non-recurring revenue from a terminated RAL contract.

The segment’s pretax income increased to $31.7 million, compared to income of $4.1 million a year ago.  This improvement was primarily due to the lower credit losses and a decline in impairment and litigation related charges, partially offset by increased marketing expense and the decline in revenues.

Nine-month segment revenues fell 0.8 percent to $868.1 million.  The pretax loss for the first nine months of fiscal 2012 was $311.7 million, compared to a loss of $324.9 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. Third quarter corporate revenues of $7.6 million were essentially flat to the prior year.  The segment’s pretax loss of $32.7 million for the third quarter ended Jan. 31, 2012, compared to a loss of $30.1 million in the prior year.

Nine-month corporate revenues grew 2.5 percent to $25.0 million.  The pretax loss for the first nine months of fiscal 2012 was $93.8 million, compared to a loss of $91.8 million in the prior-year period.
 
Discontinued Operations
 
Discontinued operations includes the results of RSM McGladrey (“RSM”) and Sand Canyon Corporation, formerly known as Option One Mortgage Corporation, and its subsidiaries (“SCC”).
 

 
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During the third quarter, SCC received new claims for alleged breaches of representations and warranties in the principal amount of $35 million.  SCC completed a review of prior period claims with an approximate principal balance of $220 million. Claims found to be valid in the third quarter have estimated losses totaling $1.2 million.  As payments related to these valid claims remained pending at Jan. 31, SCC’s accrual for representation and warranty liabilities remained unchanged from the prior quarter at $143 million.  At Jan. 31, total claims of $399 million remain subject to review.
 
Discontinued operations reported third quarter net income of $0.2 million compared to a net loss of $1.7 million in the prior-year period.  For the first nine months of fiscal 2012, the net loss in discontinued operations increased to $74.4 million, or $0.25 per share, compared to a loss of $2.2 million, or $0.01 per share in the prior year period.  The increase fiscal year-to-date is primarily due to the net loss of $37.1 million on the sale of RSM and increased loss provisions for litigation and representation and warranty claims.

Committed Line of Credit (“CLOC”)

The company also announced today an amendment of its CLOC that reduced its minimum equity covenant by $150 million to $500 million.  The company expects to refinance the CLOC, which expires in July 2013, during fiscal year 2013.

Dividend

A previously announced quarterly cash dividend of 20 cents per share is payable April 2, 2012, to shareholders of record March 12, 2012.

Conference Call

At 4:30 p.m. Eastern today, 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: 48334982
 
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 March 7 and continuing until March 20, 2012, and may be accessed by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 48334982. The webcast will be available for replay beginning on March 8.
 
Forward Looking Statements
This press release may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,”

 
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“should,” “could” or “may.” Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. They may include estimates of revenues, income, earnings per share, capital expenditures, dividends, liquidity, capital structure or other financial items, descriptions of management's plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company’s good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes, except as required by federal securities laws. By their nature, forward-looking statements are subject to risks and uncertainties. For a discussion of these and other factors that could cause the company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company’s 2011 Annual Report on Form 10-K and in other filings by the company with the Securities and Exchange Commission.

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 nearly $3.0 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 approximately 100,000 professional tax preparers, and through H&R Block At Home™ digital products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Online Press Center.
 
 
# # #

 
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KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
 
   
Three months ended January 31,
   
Revenues
 
Income (loss)
   
2012
 
2011
 
2012
 
2011
                 
Tax Services
 
 $        655,701
 
 $        672,810
 
 $          31,716
 
 $            4,114
Corporate and Eliminations
 
               7,579
 
               7,486
 
            (32,742)
 
            (30,082)
   
 $        663,280
 
 $        680,296
 
              (1,026)
 
            (25,968)
Income tax (benefit)
         
               2,541
 
            (14,934)
Net loss from continuing operations
     
              (3,567)
 
            (11,034)
Net income (loss) from discontinued operations
     
                 218
 
              (1,687)
Net loss
         
 $           (3,349)
 
 $         (12,721)
                 
Basic and diluted loss per share:
           
  Net loss from continuing operations
     
 $             (0.01)
 
 $             (0.04)
  Net loss from discontinued operations
     
                    -   
 
                    -   
  Net loss  
         
 $             (0.01)
 
 $             (0.04)
                 
Basic and diluted shares outstanding
     
           292,963
 
           305,144
                 
   
Nine months ended January 31,
   
Revenues
 
Income (loss)
   
2012
 
2011
 
2012
 
2011
                 
Tax Services
 
 $        868,144
 
 $        875,376
 
 $       (311,733)
 
 $       (324,865)
Corporate and Eliminations
 
             24,953
 
             24,345
 
            (93,823)
 
            (91,770)
   
 $        893,097
 
 $        899,721
 
          (405,556)
 
          (416,635)
Income tax benefit
         
          (159,821)
 
          (166,349)
Net loss from continuing operations
     
          (245,735)
 
          (250,286)
Net loss from discontinued operations
     
            (74,436)
 
              (2,165)
Net loss
         
 $       (320,171)
 
 $       (252,451)
                 
Basic and diluted loss per share:
           
  Net loss from continuing operations
     
 $             (0.82)
 
 $             (0.80)
  Net loss from discontinued operations
     
               (0.25)
 
               (0.01)
  Net loss  
         
 $             (1.07)
 
 $             (0.81)
                 
Basic and diluted shares outstanding
     
           299,450
 
           310,546
 
 
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 November 2011, we sold substantially all assets of RSM McGladrey, Inc. (RSM) to McGladrey & Pullen LLP (M&P) for net cash proceeds of $495.6 million. We also received a short-term note in the amount of $32.3 million and a long-term note in the amount of $54.0 million. M&P assumed substantially all liabilities of RSM, including contingent payments and lease obligations. We have indemnified M&P for certain litigation matters as discussed in note 13. The net after tax loss on the sale of RSM totaled $37.1 million, which includes an $85.4 million impairment of goodwill recorded in our first quarter and tax benefits of $20.5 million recorded in the third quarter associated with capital loss carry-forwards utilized.
     In the first quarter, we also announced we were evaluating strategic alternatives for RSM EquiCo, Inc. (EquiCo), and effective January 31, 2012, we sold the assets of EquiCo’s subsidiary, McGladrey Capital Markets LLC (MCM), for cash proceeds of $1.0 million. We have indemnified the buyer for certain litigation matters related to this business. The net after tax loss on the sale of MCM totaled $12.4 million and included a $14.3 million impairment of goodwill recorded in our first quarter. The remaining EquiCo businesses will be wound down.
     As of January 31, 2012, the results of operations of these businesses are presented as discontinued operations in the condensed consolidated financial statements. All periods presented in our condensed consolidated balance sheets and statements of operations have been reclassified to reflect our discontinued operations.
 
 
 
 

 
 

CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited, amounts in thousands, except per share data
 
   
January 31,
 
January 31,
 
April 30,
   
2012
 
2011
 
2011
ASSETS
           
Current assets:
           
  Cash and cash equivalents
 
 $  1,218,984
 
 $  1,465,690
 
 $  1,677,844
  Cash and cash equivalents - restricted
 
         34,168
 
         36,113
 
         48,383
  Receivables, net
 
    1,035,902
 
    1,173,472
 
       230,172
  Prepaid expenses and other current assets
 
       230,612
 
       303,924
 
       191,360
  Assets of discontinued operations, held for sale
 
                -   
 
       861,428
 
       900,328
    Total current assets
 
    2,519,666
 
    3,840,627
 
    3,048,087
             
  Mortgage loans held for investment, net
 
       430,189
 
       513,192
 
       485,008
  Investments in available-for-sale securities
 
       312,183
 
         27,650
 
       163,836
  Property and equipment, net
 
       260,755
 
       268,639
 
       255,298
  Intangible assets, net
 
       268,148
 
       280,281
 
       275,342
  Goodwill
 
       433,595
 
       434,989
 
       434,151
  Other assets
 
       628,253
 
       480,201
 
       627,731
Total assets
 
 $  4,852,789
 
 $  5,845,579
 
 $  5,289,453
             
LIABILITIES AND STOCKHOLDERS' EQUITY
           
Current liabilities:
           
  Customer banking deposits
 
 $  1,587,988
 
 $  1,855,195
 
 $    852,220
  Accounts payable, accrued expenses and other current liabilities
 
       597,644
 
       606,463
 
       550,982
  Accrued salaries, wages and payroll taxes
 
       130,245
 
       104,858
 
       208,748
  Accrued income taxes
 
         40,596
 
         96,614
 
       458,911
  Current portion of long-term debt
 
       630,996
 
             551
 
             557
  Commercial paper borrowings
 
       230,947
 
       632,566
 
                -   
  Federal Home Loan Bank borrowings
 
         25,000
 
         50,000
 
         25,000
  Liabilities of discontinued operations, held for sale
 
                -   
 
       228,834
 
       241,562
    Total current liabilities
 
    3,243,416
 
    3,575,081
 
    2,337,980
             
  Long-term debt
 
       409,241
 
    1,039,237
 
    1,039,527
  Federal Home Loan Bank borrowings
 
                -   
 
         25,000
 
                -   
  Other noncurrent liabilities
 
       393,683
 
       378,578
 
       462,372
      Total liabilities
 
    4,046,340
 
    5,017,896
 
    3,839,879
             
Stockholders' equity:
           
  Common stock, no par, stated value $.01 per share
 
           3,994
 
           4,124
 
           4,124
  Additional paid-in capital
 
       797,853
 
       809,733
 
       812,666
  Accumulated other comprehensive income
 
           7,409
 
           7,162
 
         11,233
  Retained earnings   
 
    2,018,252
 
    2,045,447
 
    2,658,103
  Less treasury shares, at cost
 
   (2,021,059)
 
   (2,038,783)
 
   (2,036,552)
      Total stockholders' equity
 
       806,449
 
       827,683
 
    1,449,574
Total liabilities and stockholders' equity
 
 $  4,852,789
 
 $  5,845,579
 
 $  5,289,453

 
 

 
 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share data
 
     
Three months ended January 31,
 
Nine months ended January 31,
     
2012
 
2011
 
2012
 
2011
Revenues:
               
 
Service revenues
 
 $        524,240
 
 $        513,914
 
 $        717,243
 
 $        695,269
 
Product and other revenues
 
             99,564
 
           110,370
 
           116,117
 
           127,786
 
Interest income
 
             39,476
 
             56,012
 
             59,737
 
             76,666
     
           663,280
 
           680,296
 
           893,097
 
           899,721
                   
Expenses:
               
 
Cost of revenues:
               
 
  Compensation and benefits
 
           207,480
 
           206,970
 
           316,139
 
           327,734
 
  Occupancy and equipment
 
             93,024
 
             90,653
 
           263,078
 
           261,841
 
  Depreciation and amortization of property and equipment
 
             17,770
 
             18,044
 
             50,894
 
             54,925
 
  Provision for bad debt and loan losses
 
             52,932
 
           100,028
 
             68,423
 
           118,754
 
  Interest
 
             23,543
 
             24,662
 
             69,352
 
             70,549
 
  Other
 
             60,491
 
             54,527
 
           127,551
 
           118,731
     
           455,240
 
           494,884
 
           895,437
 
           952,534
 
Impairment of goodwill
 
                    -   
 
             22,700
 
               4,257
 
             22,700
 
Selling, general and administrative expenses
 
           211,736
 
           190,639
 
           408,144
 
           350,201
     
           666,976
 
           708,223
 
        1,307,838
 
        1,325,435
                   
Operating loss
 
              (3,696)
 
            (27,927)
 
          (414,741)
 
          (425,714)
Other income, net
 
               2,670
 
               1,959
 
               9,185
 
               9,079
                   
Loss from continuing operations before tax benefit
 
              (1,026)
 
            (25,968)
 
          (405,556)
 
          (416,635)
Income tax (benefit)
 
               2,541
 
            (14,934)
 
          (159,821)
 
          (166,349)
                   
Net loss from continuing operations
 
              (3,567)
 
            (11,034)
 
          (245,735)
 
          (250,286)
Net income (loss) from discontinued operations
 
                 218
 
              (1,687)
 
            (74,436)
 
              (2,165)
                   
Net loss  
 
 $           (3,349)
 
 $         (12,721)
 
 $       (320,171)
 
 $       (252,451)
                   
Basic and diluted loss per share:
               
 
  Net loss from continuing operations
 
 $             (0.01)
 
 $             (0.04)
 
 $             (0.82)
 
 $             (0.80)
 
  Net loss from discontinued operations
 
                    -   
 
                    -   
 
               (0.25)
 
               (0.01)
 
  Net loss  
 
 $             (0.01)
 
 $             (0.04)
 
 $             (1.07)
 
 $             (0.81)
                   
 
Basic and diluted shares outstanding
 
           292,963
 
           305,144
 
           299,450
 
           310,546

 
 

 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
 
             
Nine months ended January 31,
             
2012
 
2011
                   
Net cash used in operating activities
 
 $    (1,382,771)
 
 $    (1,505,418)
                   
Cash flows from investing activities:
       
 
Purchases of available-for-sale securities
 
(178,014)
 
                   -   
 
Principal repayments on mortgage loans held for investment, net
 
35,460
 
            45,316
 
Purchases of property and equipment, net
 
(71,549)
 
(51,198)
 
Payments made for business acquisitions, net of cash acquired
 
(16,022)
 
(50,832)
 
Proceeds from sales of businesses, net
 
533,055
 
62,298
 
Franchise loans:
       
   
Loans funded
 
(43,649)
 
(90,304)
   
Payments received
 
8,455
 
9,926
 
Other, net
 
55,794
 
38,651
   
Net cash provided by (used in) investing activities
 
323,530
 
(36,143)
                   
Cash flows from financing activities:
       
 
Repayments of commercial paper
 
(413,221)
 
      (2,654,653)
 
Proceeds from commercial paper
 
644,168
 
       3,286,603
 
Customer banking deposits, net
 
735,252
 
       1,002,274
 
Dividends paid
 
(150,058)
 
(140,926)
 
Repurchase of common stock, including shares surrendered
 
         (180,566)
 
         (283,494)
 
Proceeds from exercise of stock options, net
 
               (324)
 
               (866)
 
Other, net
 
(31,424)
 
(10,062)
     
Net cash provided by financing activities
 
603,827
 
1,198,876
                   
Effects of exchange rates on cash
 
(3,446)
 
              4,330
                   
Net decrease in cash and cash equivalents
 
(458,860)
 
(338,355)
Cash and cash equivalents at beginning of the period
 
1,677,844
 
1,804,045
Cash and cash equivalents at end of the period
 
 $     1,218,984
 
 $     1,465,690
                   
Supplementary cash flow data:
       
 
Income taxes paid, net of refunds received
 
 $       163,471
 
 $       159,916
 
Interest paid on borrowings
 
55,266
 
69,313
 
Interest paid on deposits
 
5,170
 
              6,191
 
Transfers of foreclosed loans to other assets
 
              6,521
 
            12,931

 
 

 

 
Preliminary U.S. Tax Operating Data
(in thousands)
 
     
Fiscal Year to Date as of 2/28/12
 
Fiscal Year to Date as of 2/28/11
 
Percent change
Total returns prepared: (1,2)
         
   
Company-owned operations
            5,669
 
            5,530
 
2.5%
   
Franchise operations
            3,661
 
            3,650
 
0.3%
   
  Total retail operations
            9,330
 
            9,180
 
1.6%
               
   
Software
            1,372
 
            1,379
 
-0.5%
   
Online
            2,892
 
            2,401
 
20.4%
   
  Sub-total
            4,264
 
            3,780
 
12.8%
               
   
Free File Alliance
              508
 
              458
 
10.9%
   
  Total digital tax solutions
            4,772
 
            4,238
 
12.6%
     
          14,102
 
          13,418
 
5.1%
 
(1)    Prior year numbers have been reclassified between company-owned and franchise operations for offices
which were refranchised during either year.
(2)    Off season is defined as May 1 through October 31; Off season Retail returns (in thousands) for FY12
and FY11 are 306 and 339, respectively.  Digital off season returns (in thousands) for FY12 and FY11 were
151 and 124, respectively.