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H&R Block's Net Loss From Continuing Operations Improves 18 Percent; 11 Percent Improvement on Adjusted Basis

By: H&R Block |  0 Shares     71 Reads

Dec 06, 2012 (Marketwire via COMTEX)  - H&R Block, Inc. (NYSE: HRB) today announced financial results for its fiscal second quarter ended Oct. 31, 2012. Due to the seasonality of its U.S. tax business, the company typically reports a second quarter operating loss.

Second Quarter 2013 Highlights:

• Total revenues grew 6 percent to $137 million due primarily to a strong tax season in Australia
• Net loss from continuing operations improved 18 percent to $101 million, or $0.37 per share²
• Adjusted net loss from continuing operations improved 11 percent to $100 million, or $0.37 per share
• The company remains on pace to deliver $85 to $100 million of pretax earnings from cost reduction initiatives in fiscal 2013

Second Quarter Results From Continuing Operations

		Actual						Adjusted*
in millions, except EPS		Q2 FY13		Q2 FY12		Change		Q2 FY13		Q2 FY12		Change
Revenue		$137		$129		6%		$137		$129		6%
EBITDA*		($117)		($159)		26%		($117)		($141)		17%
Pretax Income (Loss)		($162)		($204)		20%		($163)		($186)		13%
Net Income (Loss)		($101)		($123)		18%		($100)		($112)		11%
Shares Outstanding		271.1		299.9		-10%		271.1		299.9		-10%
EPS		($0.37)		($0.41)		10%		($0.37)		($0.37)		0%

*Adjusted amounts and EBITDA (earnings before interest, taxes, depreciation and amortization) are non-GAAP financial measures. See "About Non-GAAP Financial Measures" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP). 

Company Perspective

"I'm very pleased with the improvement in our second quarter results, which reflect savings from our cost reduction initiatives and a strong tax season in Australia," said Bill Cobb, H&R Block's President and CEO. "The U.S. tax season is right around the corner and we believe we're on pace to deliver significant earnings and margin expansion in fiscal 2013."

Business Segment Results and Highlights

Tax Services

• Revenues grew by $9 million, or 7 percent, to $130 million, primarily due to an 8 percent increase in tax returns prepared in Australia
• Pretax loss improved by 25 percent or $44 million, to $130 million
• Adjusted pretax loss improved by 17 percent or $26 million, to $130 million primarily due to lower field wages and occupancy costs resulting from the company's cost reduction initiatives

Corporate

• Revenues declined by $1 million due to lower interest income from H&R Block Bank's shrinking mortgage loan portfolio
• Pretax loss increased by $2 million, or 7 percent, to $32 million

Second Quarter Results from Discontinued Operations

• Net loss improved by $15 million to $4 million, as prior year results included a $12 million after-tax provision for estimated losses on representation and warranty claims at Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc.
• SCC received new claims during the quarter for alleged breaches of representations and warranties in the principal amount of $10 million
• SCC reviewed claims in the principal amount of $257 million during the quarter; no losses were charged against SCC's accrual for contingent losses related to representations and warranties during the quarter
• $28 million of claims remained subject to review at Oct. 31, 2012
• SCC's accrual for contingent losses related to representations and warranties remained essentially unchanged at $129 million

Dividend

A previously announced quarterly cash dividend of 20 cents per share is payable on Jan. 2, 2013 to shareholders of record as of Dec. 10, 2012. The Jan. 2 payment marks the company's 201st consecutive quarterly dividend.

Investor Conference

At 8:15 a.m. EST today, the company will hold its investor conference in New York City. H&R Block's senior leaders will outline the company's growth strategies and outlook.

The event will be broadcast live in a listen-only format for the media and public on H&R Block's investor relations website at http://investors.hrblock.com. A replay will be available on the company's website at approximately 1:30 p.m. EST on Dec. 6 and continuing until Feb. 28, 2013.

About H&R Block

H&R Block, Inc. (NYSE: HRB) is the world's largest tax services provider, having prepared more than 600 million tax returns worldwide since 1955. In fiscal 2012, H&R Block had revenues of $2.9 billion and prepared 25.6 million tax returns worldwide. Tax return preparation services are provided in company-owned and franchise retail tax offices by nearly 100,000 professional tax preparers, and through H&R Block At Home™ digital products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Online Press Center.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, please see the section of the accompanying tables titled "About Non-GAAP Financial Measures."

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the 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 or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "could" or "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. 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 or events. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive and regulatory factors, many of which are beyond the Company's control and which are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2012 in the section entitled "Risk Factors," as well as additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

¹ Unless otherwise noted, all growth rates refer to the current period compared to the prior year period.

²All 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 October 31,
			Revenues						Income (loss)
			2012			2011			2012				2011
Tax Services			$	129,819		$	121,018		$	(130,109	)		$	(173,966	)
Corporate and Eliminations				7,444			8,176			(32,179	)			(29,963	)
			$	137,263		$	129,194			(162,288	)			(203,929	)
Income tax benefit										(61,089	)			(80,916	)
Net loss from continuing operations										(101,199	)			(123,013	)
Net loss from discontinued operations										(4,044	)			(18,711	)
Net loss									$	(105,243	)		$	(141,724	)
Basic and diluted loss per share:
	Net loss from continuing operations								$	(0.37	)		$	(0.41	)
	Net loss from discontinued operations									(0.02	)			(0.06	)
	Net loss								$	(0.39	)		$	(0.47	)
Basic and diluted shares										271,145				299,895
			Six months ended October 31,
			Revenues						Income (loss)
			2012			2011			2012				2011
Tax Services			$	220,072		$	212,443		$	(271,014	)		$	(343,449	)
Corporate and Eliminations				13,680			17,374			(60,543	)			(61,081	)
			$	233,752		$	229,817			(331,557	)			(404,530	)
Income tax benefit										(124,708	)			(162,362	)
Net loss from continuing operations										(206,849	)			(242,168	)
Net loss from discontinued operations										(5,835	)			(74,654	)
Net loss									$	(212,684	)		$	(316,822	)
Basic and diluted loss per share:
	Net loss from continuing operations								$	(0.76	)		$	(0.80	)
	Net loss from discontinued operations									(0.02	)			(0.25	)
	Net loss								$	(0.78	)		$	(1.05	)
Basic and diluted shares										274,150				302,693

NOTES TO 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. 

On October 25, 2012, we issued $500.0 million of 5.50% Senior Notes. The Senior Notes are due November 1, 2022, and are not redeemable by the bondholders prior to maturity. On October 25, 2012, we provided notice to the trustee of our intention to redeem the entire principal amount of the $600.0 million Senior Notes due in January 2013. The redemption settled on November 26, 2012 at a price of $623.0 million. Proceeds of the $500.0 million Senior Notes and other cash balances were used to repay the $600.0 million Senior Notes.

H&R BLOCK
CONSOLIDATED BALANCE SHEETS
Unaudited, amounts in thousands, except per share data
			October 31,				October 31,				April 30,
			2012				2011				2012
ASSETS
Current assets:
	Cash and cash equivalents		$	1,260,901			$	572,611			$	1,944,334
	Cash and cash equivalents - restricted			38,667				37,524				48,100
	Receivables, net			124,511				128,062				193,858
	Prepaid expenses and other current assets			282,874				218,054				314,702
	Assets of discontinued operations, held for sale			-				729,153				-
		Total current assets		1,706,953				1,685,404				2,500,994
	Mortgage loans held for investment, net			370,850				450,137				406,201
	Investments in available-for-sale securities			388,640				306,310				371,315
	Property and equipment, net			285,335				257,870				252,985
	Intangible assets, net			262,296				262,106				264,451
	Goodwill			434,492				438,403				427,566
	Other assets			448,164				576,283				426,055
Total assets			$	3,896,730			$	3,976,513			$	4,649,567
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Customer banking deposits		$	790,106			$	723,318			$	827,549
	Accounts payable, accrued expenses and other current liabilities			406,447				581,069				567,079
	Accrued salaries, wages and payroll taxes			39,345				46,588				163,992
	Accrued income taxes			95,126				135,858				336,374
	Commercial paper borrowings			-				39,990				-
	Current portion of long-term debt			600,678				30,735				631,434
	Federal Home Loan Bank borrowings			-				25,000				-
	Liabilities of discontinued operations, held for sale			-				199,030				-
		Total current liabilities		1,931,702				1,781,588				2,526,428
	Long-term debt			906,125				1,009,196				409,115
	Other noncurrent liabilities			365,970				322,907				388,132
		Total liabilities		3,203,797				3,113,691				3,323,675
Stockholders' equity:
	Common stock, no par, stated value $.01 per share			3,166				3,994				3,979
	Additional paid-in capital			748,298				799,270				796,784
	Accumulated other comprehensive income			8,685				4,359				12,145
	Retained earnings			795,707				2,080,162				2,523,997
	Less treasury shares, at cost			(862,923	)			(2,024,963	)			(2,011,013	)
		Total stockholders' equity		692,933				862,822				1,325,892
Total liabilities and stockholders' equity			$	3,896,730			$	3,976,513			$	4,649,567

H&R BLOCK
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share data
				Three months ended  October 31,								Six months ended  October 31,								Three months ended  July 31,
				2012				2011				2012				2011				2012				2011
Revenues:
	Service revenues			$	116,438			$	109,983			$	196,334			$	193,003			$	79,896			$	83,020
	Product and other revenues				10,966				9,290				17,686				16,553				6,720				7,263
	Interest income				9,859				9,921				19,732				20,261				9,873				10,340
					137,263				129,194				233,752				229,817				96,489				100,623
Expenses:
	Cost of revenues:
		Compensation and benefits			54,764				61,438				94,349				108,659				39,585				47,221
		Occupancy and equipment			82,398				86,551				162,349				170,054				79,951				83,503
		Depreciation and amortization of property and equipment			17,927				16,652				34,232				33,124				16,305				16,472
		Provision for bad debt and loan losses			3,725				8,200				8,370				15,491				4,645				7,291
		Interest			23,390				22,873				45,467				45,809				22,077				22,936
		Other			29,807				31,899				60,668				67,060				30,861				35,161
					212,011				227,613				405,435				440,197				193,424				212,584
	Impairment of goodwill				-				4,257				-				4,257				-				-
	Selling, general and administrative expenses				90,327				103,755				165,805				196,408				75,478				92,653
					302,338				335,625				571,240				640,862				268,902				305,237
Operating loss					(165,075	)			(206,431	)			(337,488	)			(411,045	)			(172,413	)			(204,614	)
Other income, net					2,787				2,502				5,931				6,515				3,144				4,013
Loss from continuing operations before tax benefit					(162,288	)			(203,929	)			(331,557	)			(404,530	)			(169,269	)			(200,601	)
Income tax benefit					(61,089	)			(80,916	)			(124,708	)			(162,362	)			(63,619	)			(81,446	)
Net loss from continuing operations					(101,199	)			(123,013	)			(206,849	)			(242,168	)			(105,650	)			(119,155	)
Net loss from discontinued operations					(4,044	)			(18,711	)			(5,835	)			(74,654	)			(1,791	)			(55,943	)
Net loss				$	(105,243	)		$	(141,724	)		$	(212,684	)		$	(316,822	)		$	(107,441	)		$	(175,098	)
Basic and diluted loss per share:
	Net loss from continuing operations			$	(0.37	)		$	(0.41	)		$	(0.76	)		$	(0.80	)		$	(0.38	)		$	(0.39	)
	Net loss from discontinued operations				(0.02	)			(0.06	)			(0.02	)			(0.25	)			(0.01	)			(0.18	)
	Net loss			$	(0.39	)		$	(0.47	)		$	(0.78	)		$	(1.05	)		$	(0.39	)		$	(0.57	)
	Basic and diluted shares				271,145				299,895				274,150				302,693				277,155				305,491

H&R BLOCK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
			Six months ended October 31,
			2012				2011
Net cash used in operating activities			$	(567,036	)		$	(582,628	)
Cash flows from investing activities:
	Purchases of available-for-sale securities			(67,474	)			(155,159	)
	Sales, maturities and payments received on available-for-sale securities			53,098				23,249
	Principal repayments on mortgage loans held for investment, net			23,608				22,978
	Purchases of property and equipment, net			(60,720	)			(40,510	)
	Payments made for acquisitions of businesses and intangibles, net			(10,442	)			(8,164	)
	Proceeds from sales of businesses, net			943				37,036
	Franchise loans:
		Loans funded		(20,670	)			(27,682	)
		Payments received		8,303				7,447
	Other, net			9,275				13,685
		Net cash used in investing activities		(64,079	)			(127,120	)
Cash flows from financing activities:
	Repayments of commercial paper			-				(37,989	)
	Proceeds from commercial paper			-				77,979
	Repayments of long-term debt			(30,831	)			-
	Proceeds from issuance of long-term debt			497,185				-
	Customer banking deposits, net			(37,913	)			(129,285	)
	Dividends paid			(108,428	)			(91,446	)
	Repurchase of common stock, including shares surrendered			(339,919	)			(180,222	)
	Proceeds from exercise of stock options, net			1,288				(430	)
	Other, net			(33,004	)			(28,057	)
		Net cash used in financing activities		(51,622	)			(389,450	)
Effects of exchange rates on cash				(696	)			(6,035	)
Net decrease in cash and cash equivalents				(683,433	)			(1,105,233	)
Cash and cash equivalents at beginning of the period				1,944,334				1,677,844
Cash and cash equivalents at end of the period			$	1,260,901			$	572,611
Supplementary cash flow data:
	Income taxes paid, net		$	48,201			$	122,832
	Interest paid on borrowings			42,106				27,748
	Interest paid on deposits			2,683				3,323
	Transfers of foreclosed loans to other assets			5,312				4,438
	Accrued additions to property and equipment			10,273				10,798

H&R BLOCK
NON-GAAP FINANCIAL MEASURES
Unaudited, amounts in thousands, except per share amounts
			Three months ended October 31,								Six months ended October 31,
EBITDA (1)			2012				2011				2012				2011
Net loss from continuing operations - as reported			$	(101,199	)		$	(123,013	)		$	(206,849	)		$	(242,168	)
Add back :
	Income taxes			(61,089	)			(80,916	)			(124,708	)			(162,362	)
	Interest expense			23,390				22,873				45,467				45,809
	Depreciation and amortization			22,053				22,089				42,604				43,621
				(15,646	)			(35,954	)			(36,637	)			(72,932	)
EBITDA of continuing operations				(116,845	)			(158,967	)			(243,486	)			(315,100	)
Adjustments:
	Loss contingencies - litigation charges			(2,451	)			8,193				(4,753	)			23,357
	Impairment of goodwill and intangibles			1,421				8,237				1,421				8,237
	Severance			1,558				526				1,057				2,110
	Loss (gain) on sales of tax offices			(754	)			806				(524	)			912
				(226	)			17,762				(2,799	)			34,616
Adjusted EBITDA of continuing operations			$	(117,071	)		$	(141,205	)		$	(246,285	)		$	(280,484	)
Non-GAAP Pretax Results
Pretax loss from continuing operations - as reported			$	(162,288	)		$	(203,929	)		$	(331,557	)		$	(404,530	)
Add back :
	Loss contingencies - litigation charges			(2,451	)			8,193				(4,753	)			23,357
	Impairment of goodwill and intangibles			1,421				8,237				1,421				8,237
	Severance			1,558				526				1,057				2,110
	Loss (gain) on sales of tax offices			(754	)			806				(524	)			912
				(226	)			17,762				(2,799	)			34,616
Pretax loss from continuing operations - as adjusted			$	(162,514	)		$	(186,167	)		$	(334,356	)		$	(369,914	)
Non-GAAP After-Tax Results
Net loss from continuing operations - as reported			$	(101,199	)		$	(123,013	)		$	(206,849	)		$	(242,168	)
Add back (net of tax) :
	Loss contingencies - litigation charges			(1,506	)			4,926				(2,906	)			14,124
	Impairment of goodwill and intangibles			869				4,981				869				4,981
	Severance			951				315				646				1,276
	Loss (gain) on sales of tax offices			(460	)			487				(320	)			551
	Discrete tax items			1,472				79				4,173				(2,451	)
				1,326				10,788				2,462				18,481
Net loss from continuing operations - as adjusted			$	(99,873	)		$	(112,225	)		$	(204,387	)		$	(223,687	)
(1) Earnings before interest, taxes, depreciation and amortization.
				Three months ended October 31,								Six months ended October 31,
Non-GAAP EPS				2012				2011				2012				2011
EPS from continuing operations - as reported			$	(0.37	)		$	(0.41	)		$	(0.76	)		$	(0.80	)
Add back :
	Loss contingencies - litigation charges			(0.01	)			0.02				(0.01	)			0.05
	Impairment of goodwill and intangibles			-				0.02				-				0.02
	Severance			-				-				-				-
	Loss (gain) on sales of tax offices			-				-				-				-
	Discrete tax items			0.01				-				0.02				(0.01	)
				-				0.04				0.01				0.06
EPS from continuing operations - as adjusted			$	(0.37	)		$	(0.37	)		$	(0.75	)		$	(0.74	)
Non-GAAP Pretax Results - Tax Services segment
Pretax loss - as reported			$	(130,109	)		$	(173,966	)		$	(271,014	)		$	(343,449	)
Add back :
	Loss contingencies - litigation charges			(2,451	)			8,192				(4,753	)			23,356
	Impairment of goodwill and intangibles			1,421				8,237				1,421				8,237
	Severance			1,593				526				1,092				2,110
	Loss (gain) on sales of tax offices			(754	)			806				(524	)			912
				(191	)			17,761				(2,764	)			34,615
Pretax loss - as adjusted			$	(130,300	)		$	(156,205	)		$	(273,778	)		$	(308,834	)
Supplemental Information
Stock-based compensation expense:
	Pretax		$	5,384			$	4,486			$	7,737			$	7,824
	After-tax			3,299				2,706				4,730				4,731
Amortization of intangible assets:
	Pretax		$	4,126			$	5,435			$	8,372			$	10,497
	After-tax			2,536				3,277				5,118				6,348

Contacts:

Investor Relations
Derek Drysdale
(816) 854-4513

Media Relations
Gene King
(816) 854-4672

###

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