H&R Block Reports Fiscal 2010 First Quarter Results
Net Loss From Continuing Operations of $0.39 per Share Is Flat to Prior Year Despite Incremental Costs From Prior-Year Franchise Acquisition; Company Reiterates Fiscal 2010 Earnings Guidance of $1.60 - $1.80 per Share From Continuing Operations
KANSAS CITY, MO (MARKETWIRE via COMTEX) -- H&R Block Inc. (NYSE: HRB) today reported a net loss from continuing operations for the fiscal first quarter ended July 31, 2009, of $130.6 million, or 39 cents per share compared to a loss of $128.4 million, or 39 cents per share in the first quarter a year ago. Improved pre-season results from Business Services and lower corporate expenses were partially offset by an expected larger loss in Tax Services. The increase in Tax Services expense reflects the anticipated inclusion of additional expense attributable to tax offices acquired as part of last year's acquisition of the Company's major Southwest franchise operation, severance costs and the timing of some planned expenses as part of the Company's preparation for tax season 2010.
"First quarter results were in-line with our expectations and reflected our continuing success in driving out non-value added costs while making the necessary investments to ensure our success in fiscal 2010 and beyond," said Russ Smyth, president and chief executive officer of H&R Block. "We are focused on efforts to enhance our field-level performance and marketing effectiveness to improve client attraction, retention and satisfaction," added Smyth.
Fiscal first quarter revenues from continuing operations grew 1.3% over the prior-year period to $275.5 million. Results from discontinued operations improved to a net loss of $3.0 million compared to a net loss of $4.3 million in the first quarter a year ago. Consolidated net loss for the quarter was $133.6 million, or 40 cents per share, essentially flat compared to a loss of $132.7 million, or 41 cents per share a year ago.
Segment Reporting Changes
The Company changed its segment reporting effective May 1, 2009. Net interest margin and other gains / losses associated with H&R Block Bank's mortgage portfolio and related assets are now reported in corporate operations. The remainder of the Bank's operations is reported in the Tax Services segment. The Bank, through its Emerald suite of products provided to tax clients, primarily supports H&R Block's tax network in growing its business. In making these changes, the Company eliminated its previous reporting of a Consumer Financial Services segment.
Tax Services
First quarter Tax Services revenues rose 7.7% year-over-year to $88.0 million. Tax preparation fees increased $4.2 million, or 14.2%, primarily due to favorable results in the Company's Australian tax operations.
The segment reported a pretax loss of $172.0 million compared to $163.7 million a year ago. This primarily reflects a net impact of $7.4 million due to the Southwest franchise acquisition that occurred in the fiscal third quarter of last year, $3.5 million of severance expense, and $2.9 million of incremental expenses for information technology projects to prepare for the upcoming tax season. Expense increases were partially offset by savings achieved through closing underperforming retail office locations and renegotiating leases.
The Company continues to expect that the Tax Services segment will deliver improved margins totaling 100 basis points over the next two fiscal years.
Business Services
First quarter segment revenues rose 1.7% year-over-year to $177.6 million. Core revenues, primarily tax and consulting, increased $8.3 million, or 5.8%, over the prior-year period. Those gains were partially offset by a decline in capital markets revenues.
The segment's fiscal first quarter pretax income was $1.3 million compared to a pretax loss of $0.3 million a year ago, reflecting revenue growth and continued cost reduction efforts.
Corporate
Corporate operations reported a pretax loss of $40.2 million for the first quarter ended July 31, 2009, compared to a loss of $49.0 million in the prior year. The improvement was due to prior-year impairments of residual interests in mortgage loan securitizations and other real estate owned totaling $9.1 million that did not recur. The total allowance for loan loss reserves was $91.7 million at July 31, 2009, compared to $84.1 million at fiscal 2009 year-end.
Guidance
The Company continues to expect its fiscal 2010 earnings from continuing operations will be in the range of $1.60 to $1.80 per share.
Conference Call
At 8:30 a.m. Eastern time today, the Company will conduct a conference call for analysts and investors. 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 Access Code: 27388973
The call also will be webcast in a listen-only format for the media and public. A replay of the call will be available beginning at 10:00 a.m. Eastern time Sept. 4, 2009, and continuing until Sept. 18, 2009, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (international). The replay passcode is 27388973.
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.
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 120,000 highly trained tax professionals. The Company provides tax return preparation services in person, online through H&R Block Online, through its TaxCut(R) software and through other channels. The Company is also one of the leading providers of business services through RSM McGladrey.
H&R BLOCK
KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
Three Months Ended July 31,
----------------------------------------------
Revenues Income (loss)
----------------------- ----------------------
2009 2008 2009 2008
----------- ----------- ---------- ----------
Tax Services $ 87,963 $ 81,700 $ (171,974) $ (163,657)
Business Services 177,618 174,651 1,321 (295)
Corporate and Eliminations 9,924 15,558 (40,220) (49,018)
----------- ----------- ---------- ----------
$ 275,505 $ 271,909 (210,873) (212,970)
=========== ===========
Income tax benefit (80,256) (84,547)
---------- ----------
Net loss from continuing
operations (130,617) (128,423)
Net loss from discontinued
operations (3,017) (4,296)
---------- ----------
Net loss $ (133,634) $ (132,719)
========== ==========
Basic and diluted earnings
(loss) per share:
Net loss from continuing
operations $ (0.39) $ (0.39)
Net loss from
discontinued operations (0.01) (0.02)
---------- ----------
Net loss $ (0.40) $ (0.41)
========== ==========
Basic and diluted shares
outstanding 334,533 327,141
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic earnings per share 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.
H&R BLOCK
CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except share data
July 31, April 30,
2009 2009
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,006,303 $ 1,654,663
Cash and cash equivalents - restricted 46,639 51,656
Receivables, net 379,177 512,814
Prepaid expenses and other current assets 396,027 351,947
------------- -------------
Total current assets 1,828,146 2,571,080
Mortgage loans held for investment, net 707,712 744,899
Property and equipment, net 359,408 368,289
Intangible assets, net 379,622 385,998
Goodwill 852,018 850,230
Other assets 418,856 439,226
------------- -------------
Total assets $ 4,545,762 $ 5,359,722
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Customer banking deposits $ 712,008 $ 854,888
Accounts payable, accrued expenses and
other current liabilities 648,470 705,945
Accrued salaries, wages and payroll taxes 101,410 259,698
Accrued income taxes 330,145 543,967
Current portion of long-term debt 6,093 8,782
Federal Home Loan Bank borrowings 25,000 25,000
------------- -------------
Total current liabilities 1,823,126 2,398,280
Long-term debt 1,032,395 1,032,122
Federal Home Loan Bank borrowings 75,000 75,000
Other noncurrent liabilities 424,527 448,461
------------- -------------
Total liabilities 3,355,048 3,953,863
------------- -------------
Stockholders' equity:
Common stock, no par, stated value $.01 per
share 4,442 4,442
Additional paid-in capital 824,212 836,477
Accumulated other comprehensive income
(loss) (2,849) (11,639)
Retained earnings 2,437,017 2,671,437
Less treasury shares, at cost (2,072,108) (2,094,858)
------------- -------------
Total stockholders' equity 1,190,714 1,405,859
------------- -------------
Total liabilities and stockholders' equity $ 4,545,762 $ 5,359,722
============= =============
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share data
Three Months Ended July 31,
----------------------------
2009 2008
------------- -------------
Revenues:
Service revenues $ 247,985 $ 240,720
Interest income 12,287 17,847
Product and other revenues 15,233 13,342
------------- -------------
275,505 271,909
------------- -------------
Operating expenses:
Cost of revenues 386,450 360,138
Selling, general and administrative 103,217 123,386
------------- -------------
489,667 483,524
------------- -------------
Operating loss (214,162) (211,615)
Other income (expense), net 3,289 (1,355)
------------- -------------
Loss from continuing operations before tax
benefit (210,873) (212,970)
Income tax benefit (80,256) (84,547)
------------- -------------
Net loss from continuing operations (130,617) (128,423)
Net loss from discontinued operations (3,017) (4,296)
------------- -------------
Net loss $ (133,634) $ (132,719)
============= =============
Basic and diluted earnings (loss) per share:
Net loss from continuing operations $ (0.39) $ (0.39)
Net loss from discontinued operations (0.01) (0.02)
------------- -------------
Net loss $ (0.40) $ (0.41)
============= =============
Basic and diluted shares outstanding 334,533 327,141
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
Three Months Ended July 31,
----------------------------
2009 2008
------------- -------------
Net cash used in operating activities $ (454,577) $ (364,923)
------------- -------------
Cash flows from investing activities:
Principal payments on mortgage loans held
for investment, net 19,264 31,619
Purchases of property and equipment (8,760) (14,648)
Other, net 4,856 (901)
------------- -------------
Net cash provided by investing activities 15,360 16,070
------------- -------------
Cash flows from financing activities:
Repayments of Federal Home Loan Bank
borrowings - (40,000)
Proceeds from Federal Home Loan Bank
borrowings - 15,000
Customer banking deposits (143,199) (8,795)
Dividends paid (50,287) (46,790)
Acquisition of treasury shares (3,483) (4,116)
Proceeds from issuance of common stock, net 6,651 28,507
Other, net (25,888) (14,387)
------------- -------------
Net cash used in financing activities (216,206) (70,581)
------------- -------------
Effects of exchange rates on cash 7,063 -
Net decrease in cash and cash equivalents (648,360) (419,434)
Cash and cash equivalents at beginning of the
period 1,654,663 664,897
------------- -------------
Cash and cash equivalents at end of the
period $ 1,006,303 $ 245,463
============= =============
Supplementary cash flow data:
Income taxes paid $ 155,804 $ 83,111
Interest paid on borrowings 26,168 27,258
Interest paid on deposits 1,318 4,048
Transfers of loans to foreclosed assets 3,797 53,469
SOURCE: H & R Block
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