H&R Block Reports Fiscal 2011 Fourth Quarter and Full Year Results
KANSAS CITY, MO, Jun 23, 2011 (MARKETWIRE via COMTEX) --
H&R Block, Inc. (NYSE: HRB)
- Fourth quarter net income from continuing operations of $2.14 per share includes after-tax litigation charge of $17.0 million, or $0.06 per share(1)
- Fiscal 2011 net income from continuing operations of $419 million, or $1.35 per share
- Adjusted non-GAAP net income from continuing operations of $471 million in fiscal 2011, or $1.52 per share, compared to $474 million, or $1.42 per share in prior year
- U.S. tax returns prepared up 6.5 percent, or 1.3 million returns; U.S. market share up 80 basis points to 16.4 percent
H&R Block, Inc. (NYSE: HRB) today reported net income from continuing operations for the fiscal year ended April 30, 2011 of $419.4 million, or $1.35 per share. In addition to previously announced charges, the company's Business Services segment incurred an after-tax litigation charge in the fourth quarter of $17.0 million, or $0.06 per share. Adjusted (non-GAAP) income from continuing operations for fiscal 2011 was $470.6 million, essentially flat to adjusted net income in the prior year. Adjusted earnings per share increased 7 percent to $1.52 due to a decline in weighted average shares outstanding. Total revenues of $3.8 billion were down 2.6 percent compared to the prior year.
"The actions taken this year have strengthened important fundamentals in our business," said William C. Cobb, H&R Block's president and chief executive officer. "We achieved our highest level of U.S. client growth since 2001 and maintained strong earnings results despite a number of special items. We also reversed years of market share declines and have built a solid pipeline of new and younger clients. All of this positions us well for the future."
Tax Services
The segment reported fiscal 2011 pretax income of $767.5 million. Adjusting for special items, the segment's pretax income was $829.9 million, essentially flat to the prior year. Adjusted pretax margin for the segment improved to 28.5 percent, compared with adjusted pretax margin of 27.9 percent in the prior year, as a result of cost savings achieved through reductions in force and the office network.
Fiscal 2011 segment revenues declined 2.1 percent to $2.9 billion. This decline was primarily attributable to the strategic sale of 280 company owned locations to franchisees, as well as lower revenues stemming from the company's inability to offer refund anticipation loans this tax season.
Total U.S. tax returns prepared by H&R Block in fiscal 2011 grew 6.5 percent, or 1.3 million returns. Total retail returns prepared grew 3.6 percent, while the net average retail fee per tax return prepared declined 3.3 percent. Total digital tax returns prepared increased 13.5 percent, led by growth of 28.7 percent in online filings(2).
In tax season 2011, the company believes total industry-wide filings at the IRS increased by 1.1 percent to approximately 131 million returns. The company estimates it gained 80 basis points of total U.S. market share in tax season 2011, including 60 basis points of share in retail and 90 basis points in the digital online category.
"The significant improvement in many of our key client satisfaction indicators gives us confidence that we can attract more clients to our brand, retain clients at higher rates, and continue driving organic growth in our business," said Cobb.
RSM McGladrey
Segment pretax income of $49.0 million was down 16.5 percent compared to fiscal 2010. Adjusting for legal charges, fiscal 2011 pretax income was $77.3 million and the pretax margin was 9.3 percent. This compares to adjusted pretax income of $88.2 million and pretax margin of 10.3 percent in the prior year. Fiscal 2011 segment revenues fell 3.6 percent to $829.8 million.
Corporate
Corporate operations include corporate support department costs, as well as net interest margin and other gains/losses associated with H&R Block Bank's mortgage portfolio. Corporate operations reported a pretax loss of $139.5 million in fiscal 2011 compared to a loss of $141.9 million in the prior year.
The company's effective tax rate for continuing operations in fiscal 2011 was 38.1 percent compared to 37.6 percent 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 April 30, 2011, SCC had equity of approximately $300 million, in addition to an accrual for representation and warranty liabilities of $126.3 million.
New claims for alleged breaches of representation and warranties in the principal amount of $55 million were received during the fourth quarter. SCC completed a review of claims of approximately $41 million during the quarter, with incurred losses totaling $4.5 million. At April 30, 2011, total claims of $79 million remain subject to review.
As previously announced on March 9, 2011, SCC made its final payment of $24.2 million for reserved losses under a $50.0 million indemnification agreement dated April 2008. The indemnification agreement was entered into with a specific counterparty in exchange for a full and complete release of such party's ability to assert representation and warranty claims. SCC has fulfilled its obligation under this agreement.
Balance Sheet
At April 30, 2011, the Company had unrestricted cash of $1.7 billion and total outstanding debt of $1.1 billion. Shareholder equity at April 30 was $1.4 billion, essentially flat to the prior year.
Dividend
A previously announced quarterly cash dividend of 15 cents per share is payable on July 1, 2011, to shareholders of record as of June 10, 2011.
Conference Call
At 4:30 p.m. Eastern time today, the company will host a conference call for analysts, institutional investors and shareholders. To access the call, please dial the number below approximately 5 to 10 minutes prior to the scheduled starting time:
U.S./Canada (877) 809-6980 or International (706) 634-7287
Conference ID: 70449405
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 5:30 p.m. Eastern on June 23 and continuing until July 23, 2011, by dialing (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). The conference ID is 70449405. The webcast will be available for replay beginning on June 24.
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) is one of the world's largest tax services providers, having prepared more than 575 million tax returns worldwide since 1955. In fiscal 2011, H&R Block had annual revenues of $3.8 billion and prepared more than 24.5 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.
(1) All per share amounts are based on fully diluted shares
(2) Total online returns prepared exclude software-based and Free File Alliance ("FFA") returns.
H&R BLOCK
KEY OPERATING RESULTS
Unaudited, amounts in thousands, except per share data
Three months ended April 30,
--------------------------------------------
Revenues Income (loss)
--------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Tax Services $2,036,985 $2,030,299 $1,092,363 $1,080,335
Business Services 280,349 297,647 32,452 68,441
Corporate and Eliminations 8,117 9,948 (47,905) (38,366)
---------- ---------- ---------- ----------
$2,325,451 $2,337,894 1,076,910 1,110,410
========== ==========
Income taxes 418,680 417,978
---------- ----------
Net income from continuing
operations 658,230 692,432
Net income (loss) from
discontinued operations 331 (1,604)
---------- ----------
Net income $ 658,561 $ 690,828
========== ==========
Basic earnings (loss) per share:
Net income from continuing
operations $ 2.15 $ 2.11
Net income (loss) from
discontinued operations - -
---------- ----------
Net income $ 2.15 $ 2.11
========== ==========
Basic shares outstanding 305,283 326,255
Diluted earnings (loss) per share:
Net income from continuing
operations $ 2.14 $ 2.11
Net income (loss) from
discontinued operations - (0.01)
---------- ----------
Net income $ 2.14 $ 2.10
========== ==========
Diluted shares outstanding 306,118 327,314
Year ended April 30,
--------------------------------------------
Revenues Income (loss)
--------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Tax Services $2,912,361 $2,975,252 $ 767,498 $ 867,362
Business Services 829,794 860,349 49,003 58,714
Corporate and Eliminations 32,141 38,731 (139,476) (141,941)
---------- ---------- ---------- ----------
$3,774,296 $3,874,332 677,025 784,135
========== ==========
Income taxes 257,620 295,189
---------- ----------
Net income from continuing
operations 419,405 488,946
Net loss from discontinued
operations (13,295) (9,704)
---------- ----------
Net income $ 406,110 $ 479,242
========== ==========
Basic earnings (loss) per share:
Net income from continuing
operations $ 1.35 $ 1.47
Net loss from discontinued
operations (0.04) (0.03)
---------- ----------
Net income $ 1.31 $ 1.44
========== ==========
Basic shares outstanding 309,230 332,283
Diluted earnings (loss) per share:
Net income from continuing
operations $ 1.35 $ 1.46
Net loss from discontinued
operations (0.04) (0.03)
---------- ----------
Net income $ 1.31 $ 1.43
========== ==========
Diluted shares outstanding 309,777 333,236
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.
H&R BLOCK
CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except per share data
April 30, April 30,
2011 2010
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $1,677,844 $1,804,045
Cash and cash equivalents - restricted 48,383 34,350
Receivables, net 492,290 517,986
Prepaid expenses and other current assets 259,214 292,655
---------- ----------
Total current assets 2,477,731 2,649,036
Mortgage loans held for investment, net 485,008 595,405
Property and equipment, net 307,320 345,470
Intangible assets, net 367,919 367,432
Goodwill 846,245 840,447
Other assets 723,738 436,528
---------- ----------
Total assets $5,207,961 $5,234,318
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Customer banking deposits $ 852,220 $ 852,555
Accounts payable, accrued expenses and other
current liabilities 618,070 756,577
Accrued salaries, wages and payroll taxes 257,038 199,496
Accrued income taxes 458,910 459,175
Current portion of long-term debt 3,437 3,688
Federal Home Loan Bank borrowings 25,000 50,000
---------- ----------
Total current liabilities 2,214,675 2,321,491
Long-term debt 1,049,754 1,035,144
Federal Home Loan Bank borrowings - 25,000
Other noncurrent liabilities 493,958 412,053
---------- ----------
Total liabilities 3,758,387 3,793,688
---------- ----------
Stockholders' equity:
Common stock, no par, stated value $.01 per share 4,124 4,314
Additional paid-in capital 812,666 832,604
Accumulated other comprehensive income 11,233 1,678
Retained earnings 2,658,103 2,658,586
Less treasury shares, at cost (2,036,552) (2,056,552)
---------- ----------
Total stockholders' equity 1,449,574 1,440,630
---------- ----------
Total liabilities and stockholders' equity $5,207,961 $5,234,318
========== ==========
H&R BLOCK
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited, amounts in thousands, except per share data
Three months ended
April 30, Year ended April 30,
--------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Revenues:
Service revenues $2,005,008 $1,944,217 $3,225,861 $3,231,487
Product and other revenues 263,336 344,018 414,282 520,440
Interest income 57,107 49,659 134,153 122,405
---------- ---------- ---------- ----------
2,325,451 2,337,894 3,774,296 3,874,332
---------- ---------- ---------- ----------
Operating expenses:
Cost of revenues 1,018,461 1,024,850 2,414,590 2,467,996
Selling, general and
administrative 232,365 203,936 694,136 631,499
---------- ---------- ---------- ----------
1,250,826 1,228,786 3,108,726 3,099,495
---------- ---------- ---------- ----------
Operating income 1,074,625 1,109,108 665,570 774,837
Other income, net 2,285 1,302 11,455 9,298
---------- ---------- ---------- ----------
Income from continuing
operations before tax 1,076,910 1,110,410 677,025 784,135
Income taxes 418,680 417,978 257,620 295,189
---------- ---------- ---------- ----------
Net income from continuing
operations 658,230 692,432 419,405 488,946
Net income (loss) from
discontinued operations 331 (1,604) (13,295) (9,704)
---------- ---------- ---------- ----------
Net income $ 658,561 $ 690,828 $ 406,110 $ 479,242
========== ========== ========== ==========
Basic earnings (loss) per
share:
Net income from continuing
operations $ 2.15 $ 2.11 $ 1.35 $ 1.47
Net income (loss) from
discontinued operations - - (0.04) (0.03)
---------- ---------- ---------- ----------
Net income $ 2.15 $ 2.11 $ 1.31 $ 1.44
========== ========== ========== ==========
Basic shares outstanding 305,283 326,255 309,230 332,283
Diluted earnings (loss) per
share:
Net income from continuing
operations $ 2.14 $ 2.11 $ 1.35 $ 1.46
Net income (loss) from
discontinued operations - (0.01) (0.04) (0.03)
---------- ---------- ---------- ----------
Net income $ 2.14 $ 2.10 $ 1.31 $ 1.43
========== ========== ========== ==========
Diluted shares outstanding 306,118 327,314 309,777 333,236
H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
Year ended April 30,
----------------------
2011 2010
---------- ----------
Net cash provided by operating activities $ 512,503 $ 587,469
---------- ----------
Cash flows from investing activities:
Available-for-sale securities:
Purchases of available-for-sale securities (138,824) (5,365)
Maturities of and payments received on
available-for-sale securities 16,797 15,758
Principal payments on mortgage loans held for
investment, net 58,471 72,832
Purchases of property and equipment (62,959) (90,515)
Payments made for business acquisitions, net of
cash acquired (54,171) (10,539)
Proceeds from sales of businesses, net 71,083 66,623
Franchise loans:
Loans funded (92,455) (89,664)
Payments received 57,552 40,710
Other, net 34,349 31,513
---------- ----------
Net cash provided by (used in) investing
activities (110,157) 31,353
---------- ----------
Cash flows from financing activities:
Repayments of commercial paper (4,818,766) (1,406,013)
Proceeds from issuance of commercial paper 4,818,766 1,406,013
Repayments of other borrowings (50,000) (4,267,773)
Proceeds from other borrowings - 4,242,727
Customer banking deposits, net (11,440) 17,539
Dividends paid (186,802) (200,899)
Repurchase of common stock, including shares
surrendered (283,534) (254,250)
Proceeds from exercise of stock options 424 16,682
Other, net (3,039) (35,144)
---------- ----------
Net cash used in financing activities (534,391) (481,118)
---------- ----------
Effects of exchange rates on cash 5,844 11,678
Net increase (decrease) in cash and cash equivalents (126,201) 149,382
Cash and cash equivalents at beginning of the year 1,804,045 1,654,663
---------- ----------
Cash and cash equivalents at end of the year $1,677,844 $1,804,045
========== ==========
Supplementary cash flow data:
Income taxes paid, net of refunds received $ 244,917 $ 359,559
Interest paid on borrowings 73,791 78,305
Interest paid on deposits 8,541 10,156
Transfers of foreclosed loans to other assets 16,463 19,341
H&R BLOCK
U.S. Tax Operating Data
(in thousands, except net average fee)
Year ended April 30,
--------------------- Percent
2011 2010 Change
---------- ---------- -------
Net tax preparation fees - retail: (1,2)
Company-owned operations $1,739,490 $1,742,517 -0.2%
Franchise operations 960,219 954,291 0.6%
---------- ---------- -------
$2,699,709 $2,696,808 0.1%
========== ========== =======
Total returns prepared: (2,4)
Company-owned operations 9,168 8,817 4.0%
Franchise operations 5,588 5,429 2.9%
---------- ---------- -------
Total retail operations 14,756 14,246 3.6%
---------- ---------- -------
Software 2,201 2,193 0.4%
Online 3,722 2,893 28.7%
---------- ---------- -------
Sub-total 5,923 5,086 16.5%
---------- ---------- -------
Free File Alliance 767 810 -5.3%
---------- ---------- -------
Total digital tax solutions 6,690 5,896 13.5%
---------- ---------- -------
21,446 20,142 6.5%
========== ========== =======
Net average fee - retail: (2,3)
Company-owned operations $ 189.73 $ 197.63 -4.0%
Franchise operations 171.86 175.65 -2.2%
---------- ---------- -------
$ 182.96 $ 189.25 -3.3%
========== ========== =======
(1) Amounts include gross tax preparation fees less coupons and discounts.
(2) Prior year tax preparation fees (in thousands) of $70,199 and returns
prepared (in thousands) of 365 have been reclassified between
company-owned and franchise operations for offices which were
refranchised during either year.
(3) Amounts are calculated as net retail tax preparation fees divided by
retail tax returns.
(4) Total returns prepared include the filing (in thousands) of 93 and 38
extensions for 2011 and 2010 respectively.
H&R BLOCK
NON-GAAP RECONCILIATION
Unaudited, amounts in millions, except per share amounts
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.
Segment Pretax Income
--------------------------------------
Tax Services Business Services
Year ended Year ended
April 30, April 30,
------------------ ------------------
2011 2010 2011 2010
-------- -------- -------- --------
Pretax income - as reported $ 767.5 $ 867.4 $ 49.0 $ 58.7
-------- -------- -------- --------
Add back (pretax):
Litigation and arbitration 15.0 - 28.3 14.5
Incremental Emerald Advance
credit losses (1) 40.5 - - -
Severance 27.4 11.9 - -
Asset impairments 24.6 - - 15.0
Gain on sale of tax offices to
franchisees (45.1) (49.0) - -
-------- -------- -------- --------
62.4 (37.1) 28.3 29.5
-------- -------- -------- --------
-------- -------- -------- --------
Pretax income - as adjusted $ 829.9 $ 830.3 $ 77.3 $ 88.2
======== ======== ======== ========
Revenues - as reported $2,912.4 $2,975.3 $ 829.8 $ 860.3
-------- -------- -------- --------
Pretax margin - as reported 26.4% 29.2% 5.9% 6.8%
Pretax margin - as adjusted 28.5% 27.9% 9.3% 10.3%
Consolidated Net Income
Year ended April 30,
--------------------------------------
2011 2010
------------------ ------------------
After-tax Per share After-tax Per share
-------- -------- -------- --------
Net income from continuing
operations - as reported $ 419.4 $ 1.35 $ 488.9 $ 1.46
-------- -------- -------- --------
Add back (net of tax):
Litigation and arbitration 26.8 0.09 9.1 0.03
Incremental Emerald Advance
credit losses (1) 25.1 0.08 - -
Severance 18.3 0.06 8.4 0.03
Asset impairments 15.2 0.05 9.4 0.03
Gain on sale of tax offices to
franchisees (27.9) (0.09) (30.6) (0.09)
Other gains (2) (6.3) (0.02) (11.5) (0.04)
-------- -------- -------- --------
51.2 0.17 (15.2) (0.04)
-------- -------- -------- --------
-------- -------- -------- --------
Net income from continuing
operations - as adjusted $ 470.6 $ 1.52 $ 473.7 $ 1.42
======== ======== ======== ========
Diluted shares 309.8 333.2
(1) Credit losses were higher in fiscal 2011 compared to fiscal 2010 as a
result of higher levels of Emerald Advance clients not returning for
tax preparation. Incremental credit losses were calculated based on the
difference between the fiscal 2011 loss rate assumption and the actual
loss rate multiplied by the principal amount of fiscal 2011 loan
originations.
(2) Represents gain on commutation of insurance liability in fiscal year
2010 and gains on residual interests in securitizations in fiscal years
2011 and 2010. Both gains were recorded in corporate operations.
For Further Information
Investor Relations:
Derek Drysdale
(816) 854-4513
Media Relations:
Kate O'Neill Rauber
(816) 854-4548
###
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