H&R Block Reports Fiscal 2010 Third Quarter Results
KANSAS CITY, MO (MARKETWIRE via COMTEX) -- H&R Block, Inc. (NYSE: HRB)
- 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
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 share(1), 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
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 returns(2) 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.
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(TM) online and desktop software products, and through other channels. The Company is also one of the leading providers of business services through RSM McGladrey.
(1) All per share amounts are based on fully diluted shares
(2) "Digital returns" consist of online and desktop software products,
excluding Free File Alliance returns.
H&R BLOCK
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.
H&R BLOCK
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
=========== =========== ===========
H&R BLOCK
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
Three months ended Nine months ended
January 31, 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
H&R BLOCK
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
H&R BLOCK
Interim U.S. Tax Operating Data
(amounts in thousands, except net average fee)
YTD YTD Percent YTD YTD Percent
1/31/10 1/31/09 change 2/28/10 2/28/09 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.
SOURCE: H & R Block
###
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