H&R Block Announces Fiscal 2013 Results

KANSAS CITY, MO - (Marketwired) - 06/12/13 - H&R Block, Inc. (NYSE: HRB)

  • Earnings per share(1) from continuing operations of $1.69, up 46% from prior year(2)
  • Total revenues increase 0.4% to $2.9 billion
  • Successful cost reduction initiatives contribute to $126 million, or 22%, increase in pretax earnings from continuing operations
  • EBITDA increased 15% to $874 million, or 30% of revenues(3)

H&R Block, Inc. (NYSE: HRB), the world's largest consumer tax services provider, today announced its financial results for the fiscal year ended April 30, 2013. Earnings per share from continuing operations increased 46 percent to $1.69. On an adjusted non-GAAP basis, earnings per share from continuing operations increased 25 percent to $1.59, largely driven by the successful execution of the company's previously announced cost reduction initiatives. Total revenues increased 0.4 percent to $2.9 billion, while total expenses fell 5 percent to $2.2 billion.

The 2013 U.S. tax season experienced unprecedented challenges, including significant tax legislation changes that occurred shortly before the traditional opening of the tax season, delays related to the opening of the Internal Revenue Service's (IRS) e-file system, and increased fraud controls at the IRS affecting several forms, among other matters. Based on data through April 30, the company estimates total filings at the IRS during tax season 2013 decreased approximately 0.6 percent to 133 million returns, and that the company maintained its share of total U.S. tax returns. International returns increased 1.3 percent to 3.3 million. Total tax returns prepared worldwide by and through H&R Block were 25.4 million in fiscal 2013.

CEO Perspective

"Considering the challenges the industry faced this tax season, we're pleased to have executed well and delivered improved profits," said Bill Cobb, H&R Block's president and chief executive officer. "While there is opportunity for improvement, we remain committed to our long-term strategy of balancing client acquisition with earnings growth. Consistent with this strategy, we made a number of decisions this year to optimize our promotional offerings and distribution channels in both the assisted and digital do-it-yourself categories. Though some of these actions negatively impact total client volume, we improved overall profitability, while maintaining our overall share of the U.S. market. We also gained share for the third consecutive year in the important digital online category," added Cobb.

Fiscal 2013 Results From Continuing Operations

    Actual   Adjusted*
in millions, except EPS   Fiscal
Year
2013
  Fiscal
Year
2012
  Fiscal
Year
2013
  Fiscal
Year
2012
Revenue   $2,906   $2,894   $2,906   $2,894
EBITDA*   $874   $757   $883   $808
Pretax Income   $702   $576   $710   $626
Net Income   $465   $346   $437   $380
Weighted Avg. Shares - Diluted   274.4   298.6   274.4   298.6
EPS   $1.69   $1.16   $1.59   $1.27

*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).

CFO Perspective

"While we would have preferred to see stronger revenue growth, I'm pleased that we remained disciplined and exceeded our previously stated goal of reducing costs $85 to $100 million," said Greg Macfarlane, H&R Block's chief financial officer. "Despite the industry challenges we faced, we were able to deliver modest revenue growth along with significant expansion in our EBITDA margin, which increased four full points to 30%. We remain committed to providing shareholder return, evidenced by share repurchases and dividends totaling $532 million this fiscal year, and appreciation in our stock price that outpaced the S&P 500 benchmark during the last 12 months."

Business Segment Results and Highlights

Tax Services

  • Revenues increased 0.5 percent to $2.9 billion, primarily due to changes in promotional offerings such as the Free Refund Anticipation Check (RAC) and an increase in digital online filings
  • U.S. assisted tax preparation fees and royalties declined 1 percent to $2.0 billion due to a 2.7 percent decrease in assisted returns prepared, partially offset by a 1.7 percent increase in price
  • Revenues related to core financial services increased 7 percent to $317 million, primarily due to the discontinuation of the Free RAC promotion in fiscal 2013, partially offset by lower Emerald Card fees compared to the prior year
  • International revenue increased 7 percent to $249 million, with strong performance in both Canada andAustralia
  • Total expenses declined 4.7 percent to $2.1 billion, driven by previously announced cost reduction initiatives that included lower compensation and occupancy costs.
  • Adjusted, non-GAAP pretax income improved 9 percent to $823 million, primarily due to successful cost reduction initiatives mentioned above

Corporate

  • Pretax loss improved by $9 million to $119 million, due to lower interest expense resulting from the refinancing of our medium term notes during this fiscal year. Additionally, the provision for loan loss decreased reflecting lower delinquencies in the mature and declining legacy mortgage loan portfolio noted below.
  • Net balance of mortgage loans held for investment declined $67 million to $339 million, while provision for loan losses declined 45 percent to $13.3 million
  • Effective tax rate from continuing operations improved approximately 6.2 points to 33.7%, driven by a $43 million tax benefit related to the settlement of substantially all outstanding issues in our 1999 through 2007 tax returns with the IRS

Discontinued Operations

  • Net loss of $31 million compared to $80 million net loss in prior year as fiscal 2012 results included a loss on the sale of RSM McGladrey
  • Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc., received new claims during the quarter for alleged breaches of representations and warranties in the principal amount of $23 million
  • SCC reviewed claims in the principal amount of $26 million during the quarter, all of which were deemed invalid
  • During the latter half of fiscal 2013, SCC entered into tolling agreements with certain counterparties from which SCC had received a significant majority of its asserted claims. During the fourth quarter SCC engaged in settlement discussions with these counterparties related to previously denied and future claims. Based on these actions and other considerations, SCC recorded a provision of $40 million during the fourth quarter, increasing its accrual for contingent losses related to representations and warranties to $159 million at April 30.

Balance Sheet

  • As of April 30, 2013 the company had unrestricted cash of $1.7 billion and total outstanding debt of $0.9 billion
  • Shareholder equity at April 30 was $1.3 billion

Share Repurchases and Dividends

During fiscal 2013, the company repurchased and retired 21.3 million shares at an aggregate price of $315.0 million, or $14.82 per share. The purchase represented an approximate 8 percent reduction in shares outstanding. As of April 30, 2013, 272.6 million shares remained outstanding.

A previously announced quarterly cash dividend of 20 cents per share is payable on July 1, 2013 to shareholders of record as of June 17, 2013. The July 1 dividend payment will mark H&R Block's 203rd consecutive quarterly dividend since the company went public in 1962.

Conference Call

At 4:30 p.m. Eastern on June 12, 2013, 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) 758-0071
Conference ID: 57796144

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://investors.hrblock.com.

A replay of the call will be available beginning at 6:30 p.m. Eastern on June 12, 2013, and continuing until July 12, 2013, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 57796144. The webcast will be available for replay June 13, 2013 at http://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (NYSE: HRB) is the world's largest consumer tax services provider. More than 600 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2013, H&R Block had annual revenues of $2.9 billion with 25.4 million tax returns prepared worldwide. Tax return preparation services are provided in company-owned and franchise retail tax offices by approximately 90,000 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) All per share amounts are based on fully diluted shares.
(2) Unless otherwise noted, all comparisons, including those made to the "prior year," refer to the current period compared to the prior year period.
(3) EBITDA (earnings before interest, taxes, depreciation and amortization) is 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).

KEY OPERATING RESULTS        
Unaudited, amounts in thousands, except per share data        
                     
    Three months ended April 30,  
    Revenues   Income (loss)  
    2013   2012   2013     2012  
                             
Tax Services   $ 2,193,261   $ 1,994,234   $ 1,156,346     $ 1,015,735  
Corporate and Eliminations     6,951     6,440     (26,510 )     (34,109 )
    $ 2,200,212   $ 2,000,674     1,129,836       981,626  
Income taxes                 440,914       389,923  
Net income from continuing operations           688,922       591,703  
Net loss from discontinued operations           (24,582 )     (5,600 )
Net income               $ 664,340     $ 586,103  
                             
Basic earnings per share:                            
  Continuing operations               $ 2.53     $ 2.02  
  Discontinued operations                 (0.09 )     (0.02 )
  Consolidated               $ 2.44     $ 2.00  
                             
Basic shares                 272,384       293,103  
                             
Diluted earnings per share:                            
  Continuing operations               $ 2.51     $ 2.01  
  Discontinued operations                 (0.09 )     (0.02 )
  Consolidated               $ 2.42     $ 1.99  
                             
Diluted shares                 274,715       293,985  
                     
                     
    Twelve months ended April 30,  
    Revenues   Income (loss)  
    2013   2012   2013     2012  
                             
Tax Services   $ 2,877,967   $ 2,862,378   $ 821,143     $ 704,002  
Corporate and Eliminations     27,976     31,393     (119,132 )     (127,932 )
    $ 2,905,943   $ 2,893,771     702,011       576,070  
Income taxes                 236,853       230,102  
Net income from continuing operations           465,158       345,968  
Net loss from discontinued operations           (31,210 )     (80,036 )
Net income               $ 433,948     $ 265,932  
                             
Basic earnings per share:                            
  Continuing operations               $ 1.70     $ 1.16  
  Discontinued operations                 (0.11 )     (0.27 )
  Consolidated               $ 1.59     $ 0.89  
                             
Basic shares                 273,057       297,863  
                             
Diluted earnings per share:                            
  Continuing operations               $ 1.69     $ 1.16  
  Discontinued operations                 (0.11 )     (0.27 )
  Consolidated               $ 1.58     $ 0.89  
                             
Diluted shares                 274,359       298,601  
                             
                 

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 aggregate principal amount of our 5.50% Senior Notes due 2022 for aggregate proceeds of $497.2 million. The notes bear interest at 5.50% per annum, subject to adjustment based upon our credit ratings. Interest is payable on May 1 and November 1 of each year beginning on May 1, 2013 until the stated maturity date of November 1, 2022. The notes were issued by our wholly-owned subsidiary, Block Financial LLC (Block Financial), and were fully and unconditionally guaranteed by H&R Block, Inc.

On October 25, 2012, we provided notice to the trustee of our intention to redeem the entire $600.0 millionaggregate principal amount of our 7.785% Senior Notes that were due to mature in January 2013. The redemption settled on November 26, 2012 for an aggregate price of $623.0 million, which included full payment of principal, a make-whole premium of $5.8 million and interest accrued up to the redemption date of $17.2 million. Proceeds of the issuance of our 5.50% Senior Notes, together with cash balances on hand, were used to redeem the 7.875% Senior Notes. We recognized a loss on the extinguishment of this debt of $5.8 million in fiscal year 2013, which primarily represents the interest that would have been paid on these notes if they had not been redeemed prior to maturity. This loss is included in other income, net on our consolidated statements of income.

             
CONSOLIDATED BALANCE SHEETS  
Unaudited, amounts in thousands, except per share data  
             
    April 30,     April 30,  
    2013     2012  
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 1,747,584     $ 1,944,334  
  Cash and cash equivalents - restricted     117,837       48,100  
  Receivables, net     206,835       193,858  
  Prepaid expenses and other current assets     390,087       314,702  
    Total current assets     2,462,343       2,500,994  
                 
  Mortgage loans held for investment, net     338,789       406,201  
  Investments in available-for-sale securities     486,876       371,315  
  Property and equipment, net     267,880       240,772  
  Intangible assets, net     284,439       276,664  
  Goodwill     434,782       427,566  
  Other assets     262,670       426,055  
Total assets   $ 4,537,779     $ 4,649,567  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Customer banking deposits   $ 936,464     $ 827,549  
  Accounts payable, accrued expenses and other current liabilities     523,921       567,079  
  Accrued salaries, wages and payroll taxes     134,970       163,992  
  Accrued income taxes     416,128       336,374  
  Current portion of long-term debt     722       631,434  
    Total current liabilities     2,012,205       2,526,428  
                 
  Long-term debt     905,958       409,115  
  Other noncurrent liabilities     356,069       388,132  
    Total liabilities     3,274,232       3,323,675  
                 
Stockholders' equity:                
  Common stock, no par, stated value $.01 per share     3,166       3,979  
  Additional paid-in capital     752,483       796,784  
  Accumulated other comprehensive income     10,550       12,145  
  Retained earnings     1,333,445       2,523,997  
  Less treasury shares, at cost     (836,097 )     (2,011,013 )
    Total stockholders' equity     1,263,547       1,325,892  
Total liabilities and stockholders' equity   $ 4,537,779     $ 4,649,567  
                 
                 
                         
CONSOLIDATED STATEMENTS OF INCOME  
Unaudited, amounts in thousands, except per share data  
                         
    Three months ended April 30,     Twelve months ended April 30,  
    2013     2012     2013     2012  
Revenues:                                
  Service revenues   $ 1,884,472     $ 1,717,064     $ 2,443,000     $ 2,434,307  
  Product and other revenues     274,943       243,547       364,114       359,664  
  Interest income     40,797       40,063       98,829       99,800  
      2,200,212       2,000,674       2,905,943       2,893,771  
                                 
Expenses:                                
  Cost of revenues:                                
    Compensation and benefits     514,731       512,634       769,161       828,773  
    Occupancy and equipment     107,553       118,122       354,612       381,200  
    Provision for bad debt and loan losses     39,287       23,734       90,685       92,157  
    Interest     15,062       22,737       79,957       92,089  
    Depreciation and amortization of property and equipment     19,081       16,470       68,192       61,390  
    Other     126,021       112,561       242,181       246,086  
      821,735       806,258       1,604,788       1,701,695  
  Impairment of goodwill     -       3,152       -       7,409  
  Selling, general and administrative expenses     251,667       210,231       604,469       618,375  
      1,073,402       1,019,641       2,209,257       2,327,479  
                                 
Operating income     1,126,810       981,033       696,686       566,292  
Other income, net     3,026       593       5,325       9,778  
                                 
Income from continuing operations before taxes     1,129,836       981,626       702,011       576,070  
Income taxes     440,914       389,923       236,853       230,102  
                                 
Net income from continuing operations     688,922       591,703       465,158       345,968  
Net loss from discontinued operations     (24,582 )     (5,600 )     (31,210 )     (80,036 )
                                 
Net income   $ 664,340     $ 586,103     $ 433,948     $ 265,932  
                                 
Basic earnings per share:                                
  Continuing operations   $ 2.53     $ 2.02     $ 1.70     $ 1.16  
  Discontinued operations     (0.09 )     (0.02 )     (0.11 )     (0.27 )
  Consolidated   $ 2.44     $ 2.00     $ 1.59     $ 0.89  
                                 
  Basic shares     272,384       293,103       273,057       297,863  
                                 
Diluted earnings per share:                                
  Continuing operations   $ 2.51     $ 2.01     $ 1.69     $ 1.16  
  Discontinued operations     (0.09 )     (0.02 )     (0.11 )     (0.27 )
  Consolidated   $ 2.42     $ 1.99     $ 1.58     $ 0.89  
                                 
  Diluted shares     274,715       293,985       274,359       298,601  
                                   
                                   
         
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
Unaudited, amounts in thousands  
             
    Twelve months ended April 30,  
    2013     2012  
                 
Net cash provided by operating activities   $ 497,108     $ 362,049  
                 
Cash flows from investing activities:                
  Purchases of available-for-sale securities     (227,177 )     (256,173 )
  Sales, maturities and payments received on available-for-sale securities     118,411       66,382  
  Principal repayments on mortgage loans held for investment, net     44,031       49,142  
  Purchases of property and equipment, net     (113,239 )     (82,457 )
  Payments made for acquisitions of businesses and intangibles, net     (20,742 )     (15,258 )
  Proceeds from sale of businesses, net     3,785       560,499  
  Franchise loans:                
    Loans funded     (70,807 )     (46,246 )
    Payments received     83,445       56,591  
  Surrender of company-owned life insurance policies     81,125       -  
  Other, net     (9,769 )     19,387  
    Net cash provided by (used in) investing activities     (110,937 )     351,867  
                 
Cash flows from financing activities:                
  Repayments of commercial paper     (1,214,238 )     (664,167 )
  Proceeds from commercial paper     1,214,238       664,167  
  Repayments of long-term debt     (636,621 )     -  
  Proceeds from issuance of long-term debt     497,185       -  
  Repayments of FHLB borrowings     -       (25,000 )
  Customer banking deposits, net     103,608       (26,091 )
  Dividends paid     (217,201 )     (208,801 )
  Repurchase of common stock, including shares surrendered     (340,413 )     (180,592 )
  Proceeds from exercise of stock options, net     25,139       12,275  
  Other, net     (16,238 )     (16,853 )
      Net cash used in financing activities     (584,541 )     (445,062 )
                 
Effects of exchange rates on cash     1,620       (2,364 )
                 
Net increase (decrease) in cash and cash equivalents     (196,750 )     266,490  
Cash and cash equivalents at beginning of the year     1,944,334       1,677,844  
Cash and cash equivalents at end of the year   $ 1,747,584     $ 1,944,334  
                 
Supplementary cash flow data:                
  Income taxes paid, net   $ 155,617     $ 218,444  
  Interest paid on borrowings     73,559       69,681  
  Interest paid on deposits     5,665       6,843  
  Transfers of foreclosed loans to other assets     10,357       10,308  
  Accrued additions to property and equipment     4,261       801  
  Accrued purchase of common stock     -       22,484  
                   
                   
         
Tax Services Income Statement  
Unaudited, dollars in thousands  
             
    Twelve months ended April 30,  
    2013     2012  
Tax preparation fees:                
  U.S.   $ 1,712,319     $ 1,749,032  
  International     220,870       205,466  
      1,933,189       1,954,498  
Royalties     318,386       308,561  
Fees from RACs     158,176       132,361  
Fees from Emerald Card     98,896       104,143  
Fees from POM guarantees     71,355       75,603  
Interest and fee income on EAs     59,657       59,660  
Other     238,308       227,552  
  Total revenues     2,877,967       2,862,378  
                 
Compensation & benefits:                
  Field wages     654,794       691,680  
  Other wages     150,306       150,908  
  Benefits and other compensation     148,492       183,037  
      953,592       1,025,625  
Occupancy and equipment     354,430       381,572  
Marketing and advertising     270,240       278,231  
Depreciation and amortization     92,004       88,836  
Bad debt     77,402       68,082  
Supplies     40,131       44,236  
Impairment of goodwill and intangible assets     3,581       11,389  
Other     265,444       260,405  
  Total expenses     2,056,824       2,158,376  
Pretax income   $ 821,143     $ 704,002  
                 
Pretax margin     28.5 %     24.6 %
                 
                 
               
U.S. Tax Operating Data          
(in thousands)          
               
    Fiscal Year to Date through 4/30/13   Fiscal Year to Date through 4/30/12   Percent change  
Total returns prepared: (1)              
  H&R Block Company-Owned Operations   8,907   9,203   -3.2 %
  H&R Block Franchise Operations   5,598   5,697   -1.7 %
    Total H&R Block Assisted Returns   14,505   14,900   -2.7 %
               
  H&R Block At Home Desktop   2,004   2,158   -7.1 %
  H&R Block At Home Online   4,892   4,419   10.7 %
    Sub-total   6,896   6,577   4.9 %
               
  H&R Block Free File Alliance   774   861   -10.1 %
    Total H&R Block at Home   7,670   7,438   3.1 %
               
  Total H&R Block U.S. Returns   22,175   22,338   -0.7 %
               
     
(1)   Prior year numbers have been reclassified between company-owned and franchise operations for offices that were refranchised during either year.
     
     
                     
NON-GAAP FINANCIAL MEASURES  
Unaudited, amounts in thousands, except per share amounts  
                     
    Three months ended
April 30,
    Twelve months ended
April 30,
EBITDA and Adjusted EBITDA (1)   2013     2012     2013   2012
                         
Net income from continuing operations - as reported   $ 688,922     $ 591,703     $ 465,158   $ 345,968
                         
Add back :                        
  Income taxes     440,914       389,923     236,853   230,102
  Interest expense     15,062       22,737     79,957   92,089
  Depreciation and amortization     25,165       23,030     92,407   89,157
      481,141       435,690     409,217   411,348
                         
EBITDA from continuing operations     1,170,063       1,027,393     874,375   757,316
                         
Adjustments:                        
  Loss contingencies - litigation     364       (4,567 )   (4,579)   22,961
  Impairment of goodwill and intangible assets     2,160       3,152     3,581   11,389
  Severance     4,310       30,554     4,785   32,474
  Loss on extinguishment of debt     -       -     5,790   -
  Gains on sales of tax offices     (396 )     (17,742 )   (1,272)   (16,601)
      6,438       11,397     8,305   50,223
                         
Adjusted EBITDA from continuing operations   $ 1,176,501     $ 1,038,790     $ 882,680   $ 807,539
                         
Non-GAAP Pretax Results                        
                         
Pretax income from continuing operations - as reported   $ 1,129,836     $ 981,626     $ 702,011   $ 576,070
                         
Add back :                        
  Loss contingencies - litigation     364       (4,567 )   (4,579)   22,961
  Impairment of goodwill and intangible assets     2,160       3,152     3,581   11,389
  Severance     4,310       30,554     4,785   32,474
  Loss on extinguishment of debt     -       -     5,790   -
  Gains on sales of tax offices     (396 )     (17,742 )   (1,272)   (16,601)
      6,438       11,397     8,305   50,223
                         
Pretax income from continuing operations - as adjusted   $ 1,136,274     $ 993,023     $ 710,316   $ 626,293
                         
Non-GAAP After-Tax Results                        
                         
Net income from continuing operations - as reported   $ 688,922     $ 591,703     $ 465,158   $ 345,968
                         
Add back (net of tax) :                        
  Loss contingencies - litigation     215       (2,832 )   (2,817)   13,935
  Impairment of goodwill and intangible assets     1,331       1,895     2,203   6,912
  Severance     2,653       18,539     2,944   19,708
  Loss on extinguishment of debt     10       -     3,562   -
  Gains on sales of tax offices     (245 )     (10,770 )   (782)   (10,075)
  Discrete tax items     5,377       4,932     (33,302)   3,643
      9,341       11,764     (28,192)   34,123
                         
Net income from continuing operations - as adjusted   $ 698,263     $ 603,467     $ 436,966   $ 380,091
                         
                         
(1) Earnings before interest, taxes, depreciation and amortization.
                         
    Three months ended
April 30,
    Twelve months ended
April 30,
Non-GAAP EPS   2013     2012     2013   2012
                         
EPS from continuing operations - as reported   $ 2.51     $ 2.01     $ 1.69   $ 1.16
                         
Add back :                        
  Loss contingencies - litigation     -       (0.01 )   (0.01)   0.04
  Impairment of goodwill and intangible assets     -       0.01     0.01   0.02
  Severance     0.01       0.06     0.01   0.07
  Gains on sales of tax offices     -       (0.04 )   -   (0.03)
  Loss on extinguishment of debt     -       -     0.01   -
  Discrete tax items     0.02       0.02     (0.12)   0.01
      0.03       0.04     (0.10)   0.11
                         
EPS from continuing operations - as adjusted   $ 2.54     $ 2.05     $ 1.59   $ 1.27
                         
Non-GAAP Pretax Results - Tax Services segment                        
                         
Pretax income - as reported   $ 1,156,346     $ 1,015,735     $ 821,143   $ 704,002
                         
Add back :                        
  Loss contingencies - litigation     364       (4,390 )   (4,829)   23,137
  Impairment of goodwill and intangible assets     2,160       3,152     3,581   11,389
  Severance     3,781       29,365     4,261   31,125
  Gains on sales of tax offices     (396 )     (17,742 )   (1,272)   (16,601)
      5,909       10,385     1,741   49,050
                         
Pretax income - as adjusted   $ 1,162,255     $ 1,026,120     $ 822,884   $ 753,052
                         
                         
Supplemental Information                        
                         
Stock-based compensation expense:                        
  Pretax   $ 3,879     $ 3,166     $ 15,293   $ 14,213
  After-tax     2,407       1,897     9,408   8,626
Amortization of intangible assets:                        
  Pretax   $ 6,085     $ 6,560     $ 24,215   $ 27,767
  After-tax     3,775       3,935     14,896   16,852
                           
                           

About Non-GAAP Financial Measures

The accompanying press release contains non-GAAP financial measures. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures in other companies.

We consider non-GAAP financial measures to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of our core operating performance.

The following are descriptions of adjustments we make for our non-GAAP financial measures:

  • We exclude from our non-GAAP financial measures litigation charges we incur and favorable reserve adjustments. This does not include legal defense costs.
  • We exclude from our non-GAAP financial measures non-cash charges to adjust the carrying values of goodwill, intangible assets, other long-lived assets and investments to their estimated fair values.
  • We exclude from our non-GAAP financial measures severance and other restructuring charges in connection with the termination of personnel, closure of facilities and related costs.
  • We exclude from our non-GAAP financial measures the gains and losses on business dispositions, including investment banking, legal and accounting fees.
  • We exclude from our non-GAAP financial measures the gains and losses on extinguishment of debt.
  • We exclude from our non-GAAP financial measures the effects of discrete income tax reserve and related adjustments recorded in a specific quarter.

We may consider whether other significant items that arise in the future should also be excluded from our non-GAAP financial measures.

We measure the performance of our business using a variety of metrics, including EBITDA, adjusted EBITDA, adjusted pretax and net income of continuing operations, adjusted EPS and adjusted pretax results of our Tax Services segment. We also use EBITDA and pretax income of continuing operations as factors in incentive compensation calculations for our employees. These adjusted results eliminate the impact of items that we do not consider indicative of our core operating performance and, we believe, provide meaningful information to assist in understanding our financial results, analyzing trends in our underlying business, and assessing our prospects for future performance.

Contacts:

Investor Relations
Colby Brown
(816) 854-4559

Media Relations
Gene King
(816) 854-4672

Source: H & R Block

###

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