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H&R Block Announces Fiscal 2013 Results

By: H&R Block |  2 Shares     114 Reads

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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