H&R Block Reports Fiscal 2011 First Quarter Results

KANSAS CITY, MO, Sep 02, 2010 (MARKETWIRE via COMTEX) --
H&R Block, Inc. (NYSE: HRB)

  • Net loss from continuing operations of $114.8 million, or $0.36 per share prior to severance charge, compared to prior-year loss of $130.6 million, or $0.39 per share*
  • Consolidated net loss of $130.7 million, or $0.41 per share, compared to prior-year loss of $133.6 million, or $0.40 per share
  • Total revenues of $274.5 million essentially flat to prior year
  • Company repurchases and retires 15.5 million shares at a cost of $235.7 million

H&R Block, Inc. (NYSE: HRB) today reported a net loss from continuing operations for the fiscal first quarter ended July 31, 2010, of $114.8 million, or $0.36 per share prior to a severance charge, compared to a loss of $130.6 million, or $0.39 per share in the prior-year period. The Company incurred a pretax charge in the current period of $21.2 million, or $0.04 per share, for the cost of termination benefits in connection with its realignment of field and support services announced May 19, 2010. The net loss from continuing operations in the current period after the severance charge was $127.6 million, or $0.40 per share.

"Our first quarter results demonstrate the progress we have made in reducing embedded costs, and we believe we can achieve more in this area," said Alan Bennett, president and chief executive officer of H&R Block. "Our balance sheet reflects a strong position that gives us considerable financial flexibility going forward. We are working diligently to reverse the early-season client losses we have experienced in each of the past two years. Our goal is to further innovate our best-in-class financial products, demonstrate continued client-centric service improvements, and use a more compelling marketing approach to increase traffic throughout our network," added Bennett.

First quarter total revenues were down $1.0 million from the prior year to $274.5 million. The net loss from discontinued operations of $3.0 million was flat to the prior year. The consolidated net loss was $130.7 million, or $0.41 per share, compared to a loss of $133.6 million, or $0.40 per share, in the prior year period.

Tax Services

First quarter Tax Services revenues rose 4.2 percent year-over-year to $91.6 million. The segment reported a pretax loss of $174.6 million compared to $172.0 million a year ago. Absent a $19.2 million charge for severance costs and related payroll taxes associated with staff reductions, total expenses fell by $12.8 million, or 4.9 percent. These savings were achieved primarily through those staff reductions and the closing of certain underperforming retail office locations during the first quarter.

On August 31, the Company promoted Phil Mazzini to President of retail tax services. Over the past six years, Mr. Mazzini has served in a number of senior executive roles at H&R Block, including Managing Director, Senior Vice President of Operations, and President of the Eastern U.S. area.

"Phil has a strong background in senior executive P&L roles both domestically and internationally. His expertise in products and services, extensive knowledge of the tax industry, and leadership qualities made him a great choice for this role," said Bennett.

RSM McGladrey

First quarter segment revenues fell 1.6 percent compared with the prior year to $174.7 million. The segment recorded a first quarter pretax loss of $0.4 million compared to pretax income of $1.3 million a year ago. Total expenses declined $1.2 million, or 0.7 percent, from the prior year.

In July, RSM McGladrey acquired the Boston-based accounting firm Caturano & Company. The acquisition is expected to add approximately $30 million to fiscal 2011 revenues and be neither accretive nor dilutive to fiscal 2011 earnings.

Corporate

Corporate 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 mortgage portfolio. Corporate reported a pretax loss of $32.3 million for the first quarter ended July 31, 2010, compared to a loss of $40.2 million in the prior year. Lower losses were due to reduced loss provisions on mortgage loans held for investment and gains on residual interest assets from the company's former mortgage business.

Net mortgage loans held for investment declined 20 percent from $707.7 million at July 31, 2009 to $563.1 million at July 31, 2010. Loss provisions on mortgage loans totaled $8.0 million during the quarter ended July 31, 2010, a decline of $5.6 million compared with the prior year quarter.

Share Repurchases and Dividends

The company repurchased and retired 15.5 million shares in the fiscal first quarter at a cost of $235.7 million. A previously announced quarterly cash dividend of 15 cents per share is payable Oct. 1, 2010, to shareholders of record Sept. 10, 2010.

Conference Call

At 4:30 p.m. EDT, 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) 247-6355 or International (706) 679-0317
  • Conference ID: 93951013

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 6:30 p.m. EDT on Sept. 2, and continuing until Sept. 30, 2010, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). The conference ID is 93951013. The webcast will be available for replay beginning on Sept. 3 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.

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(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. For more information, visit our Online Press Center at www.hrblock.com.

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

H&R BLOCK
KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
                                      Three months ended July 31,
                            ----------------------------------------------
                                   Revenues             Income (loss)
                            ----------------------- ----------------------
                               2010        2009        2010        2009
                            ----------- ----------- ----------  ----------
Tax Services                $    91,645 $    87,963 $ (174,624) $ (171,974)
Business Services               174,710     177,618       (433)      1,321
Corporate and Eliminations        8,119       9,924    (32,260)    (40,220)
                            ----------- ----------- ----------  ----------
                            $   274,474 $   275,505   (207,317)   (210,873)
                            =========== ===========
Income tax benefit                                     (79,679)    (80,256)
                                                    ----------  ----------
Net loss from continuing
 operations                                           (127,638)   (130,617)
Net loss from discontinued
 operations                                             (3,043)     (3,017)
                                                    ----------  ----------
Net loss                                            $ (130,681) $ (133,634)
                                                    ==========  ==========
Basic and diluted earnings
 (loss) per share:
  Net loss from continuing
   operations                                       $    (0.40) $    (0.39)
  Net loss from
   discontinued operations                               (0.01)      (0.01)
                                                    ----------  ----------
  Net loss                                          $    (0.41) $    (0.40)
                                                    ==========  ==========
Basic and diluted shares
 outstanding                                           319,690     334,533
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.
H&R BLOCK
CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except per share data
                                       July 31,     July 31,    April 30,
                                         2010         2009         2010
                                     -----------  -----------  -----------
                     ASSETS
Current assets:
  Cash and cash equivalents          $ 1,098,610  $ 1,006,303  $ 1,804,045
  Cash and cash equivalents -
   restricted                             37,009       46,639       34,350
  Receivables, net                       376,929      379,177      517,986
  Prepaid expenses and other current
   assets                                325,932      396,027      292,655
                                     -----------  -----------  -----------
    Total current assets               1,838,480    1,828,146    2,649,036
  Mortgage loans held for
   investment, net                       563,090      707,712      595,405
  Property and equipment, net            326,641      359,408      345,470
  Intangible assets, net                 373,556      379,622      367,432
  Goodwill                               875,797      852,018      840,447
  Other assets                           446,600      418,856      436,528
                                     -----------  -----------  -----------
Total assets                         $ 4,424,164  $ 4,545,762  $ 5,234,318
                                     ===========  ===========  ===========
     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Customer banking deposits          $   731,413  $   712,008  $   852,555
  Accounts payable, accrued expenses
   and other current liabilities         762,281      648,470      756,577
  Accrued salaries, wages and
   payroll taxes                          76,918      101,410      199,496
  Accrued income taxes                   315,090      330,145      459,175
  Current portion of long-term debt        3,577        6,093        3,688
  Current Federal Home Loan Bank
   borrowings                             50,000       25,000       50,000
                                     -----------  -----------  -----------
    Total current liabilities          1,939,279    1,823,126    2,321,491
Long-term debt                         1,040,649    1,032,395    1,035,144
Long-term Federal Home Loan Bank
 borrowings                               25,000       75,000       25,000
Other noncurrent liabilities             394,089      424,527      412,053
                                     -----------  -----------  -----------
    Total liabilities                  3,399,017    3,355,048    3,793,688
                                     -----------  -----------  -----------
Stockholders' equity:
  Common stock, no par, stated value
   $.01 per share                          4,159        4,442        4,314
  Additional paid-in capital             811,012      824,212      832,604
  Accumulated other comprehensive
   income (loss)                          (2,648)      (2,849)       1,678
  Retained earnings                    2,255,262    2,437,017    2,658,586
  Less treasury shares, at cost       (2,042,638)  (2,072,108)  (2,056,552)
                                     -----------  -----------  -----------
    Total stockholders' equity         1,025,147    1,190,714    1,440,630
                                     -----------  -----------  -----------
Total liabilities and stockholders'
 equity                              $ 4,424,164  $ 4,545,762  $ 5,234,318
                                     ===========  ===========  ===========
H&R BLOCK
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
                                                      Three months ended
                                                           July 31,
                                                    ----------------------
                                                       2010        2009
                                                    ----------  ----------
Revenues:
  Service revenues                                  $  247,419  $  247,985
  Interest income                                       10,302      12,287
  Product and other revenues                            16,753      15,233
                                                    ----------  ----------
                                                       274,474     275,505
                                                    ----------  ----------
Operating expenses:
  Cost of revenues                                     368,016     386,450
  Selling, general and administrative                  117,029     103,217
                                                    ----------  ----------
                                                       485,045     489,667
                                                    ----------  ----------
Operating loss                                        (210,571)   (214,162)
Other income, net                                        3,254       3,289
                                                    ----------  ----------
Loss from continuing operations before tax benefit    (207,317)   (210,873)
Income tax benefit                                     (79,679)    (80,256)
                                                    ----------  ----------
Net loss from continuing operations                   (127,638)   (130,617)
Net loss from discontinued operations                   (3,043)     (3,017)
                                                    ----------  ----------
Net loss                                            $ (130,681) $ (133,634)
                                                    ==========  ==========
Basic and diluted earnings (loss) per share:
  Net loss from continuing operations               $    (0.40) $    (0.39)
  Net loss from discontinued operations                  (0.01)      (0.01)
                                                    ----------  ----------
  Net loss                                          $    (0.41) $    (0.40)
                                                    ==========  ==========
  Basic and diluted shares outstanding                 319,690     334,533
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
                                                    Three months ended
                                                         July 31,
                                                  ------------------------
                                                      2010         2009
                                                  -----------  -----------
Net cash used in operating activities             $  (348,251) $  (454,577)
                                                  -----------  -----------
Cash flows from investing activities:
  Principal payments on mortgage loans held for
   investment, net                                     17,618       19,264
  Purchases of property and equipment, net             (8,634)      (8,760)
  Payments made for business acquisitions, net        (33,226)      (1,485)
  Other, net                                           18,239        6,341
                                                  -----------  -----------
   Net cash provided by (used in) investing
    activities                                         (6,003)      15,360
                                                  -----------  -----------
Cash flows from financing activities:
  Customer banking deposits                          (121,401)    (143,199)
  Dividends paid                                      (48,692)     (50,287)
  Repurchase of common stock, including shares
   surrendered                                       (164,369)      (3,483)
  Proceeds from exercise of stock options               1,500        6,651
  Other, net                                          (15,987)     (25,888)
                                                  -----------  -----------
     Net cash used in financing activities           (348,949)    (216,206)
                                                  -----------  -----------
Effects of exchange rates on cash                      (2,232)       7,063
Net decrease in cash and cash equivalents            (705,435)    (648,360)
Cash and cash equivalents at beginning of the
 period                                             1,804,045    1,654,663
                                                  -----------  -----------
Cash and cash equivalents at end of the period    $ 1,098,610  $ 1,006,303
                                                  ===========  ===========
Supplementary cash flow data:
  Income taxes paid                               $    64,651  $   155,804
  Interest paid on borrowings                          27,265       26,168
  Interest paid on deposits                             1,915        1,318
  Transfers of loans to foreclosed assets               6,527        3,797
H&R BLOCK
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,
                                                                   2010
                                                               -----------
Consolidated net loss from continuing operations - as reported $  (127,638)
Add back:
  Severance costs, net of taxes                                     12,848
                                                               -----------
Consolidated net loss from continuing operations - adjusted    $  (114,790)
                                                               ===========
Basic and diluted loss per share - as reported                 $     (0.40)
Basic and diluted loss per share - adjusted                    $     (0.36)
                                                              Three months
                                                                 ended
                                                                July 31,
                                                                  2010
                                                               -----------
Tax Services expenses - as reported                            $   266,269
Add back:
  Severance costs                                                   19,150
                                                               -----------
Tax Services expenses - adjusted                               $   247,119
                                                               ===========
Better (worse):
  Change in expenses over prior year - reported                       -2.4%
  Change in expenses over prior year - adjusted                        4.9%

SOURCE: H & R Block

###

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