H&R Block Reports Interim U.S. Tax Results Through Feb. 28; Fiscal 2012 Third Quarter Results Ended Jan. 31

KANSAS CITY, MO, Mar 07, 2012 (MARKETWIRE via COMTEX) --H&R Block, Inc. (NYSE: HRB)

Interim tax results through Feb. 28

  • Total tax returns prepared grow 5.1 percent
  • Total retail returns prepared up 1.6 percent
  • Total online(1) returns prepared increase more than 20 percent; total digital returns up nearly 13 percent
  • Total H&R Block Emerald Prepaid MasterCard(R) 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 share(2), 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

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.

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(R). 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").

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," "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(TM) digital products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Online Press Center.

(1) Total online returns prepared exclude software-based and Free File Alliance ("FFA") returns.
(2) 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 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.

H&R BLOCK
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
                                   ============  ============  ============



H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share data

                                Three months ended      Nine months ended
                                    January 31,            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



H&R BLOCK
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



H&R BLOCK
Preliminary U.S. Tax Operating Data
(in thousands)

                                         Fiscal Year Fiscal Year
                                          to Date as  to Date as   Percent
                                          of 2/28/12  of 2/28/11   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.

For Further Information

Investor Relations:
Derek Drysdale
(816) 854-4513
Email Contact

Media Relations:
Gene King
(816) 854-4672
Email Contact

SOURCE: H & R Block

###

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