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H&R Block Announces Fiscal 2016 Third Quarter Results

By: H&R Block |  0 Shares     107 Reads

KANSAS CITY, MO - (Marketwired) - March 03, 2016 - H&R Block, Inc. (NYSE: HRB), the world's largest consumer tax services provider, today released its financial results for the fiscal 2016 third quarter ended January 31, 2016 and key operating data through February 28, 2016. The company typically reports a third quarter operating loss due to the seasonality of its tax business.

Third Quarter 2016 Highlights¹

• Significant delays seen in U.S. tax industry as consumers modify tax filing behaviors and federal and state governments take new actions to combat tax fraud
• Total revenues decreased $34.5 million to $474.5 million primarily due to lower client volumes in U.S. assisted offices, the impact of the divestiture of H&R Block Bank, and the impact of foreign currency exchange rate fluctuations, partially offset by increased pricing and improved form mix
• Non-GAAP adjusted loss per share from continuing operations of $0.34²,³
• Repurchased approximately 12.0 million shares during the quarter, at an average price of $32.72; fiscal year-to-date repurchases through January 31, 2016 total 52.5 million shares, or approximately 19% of outstanding shares

"This tax season has been marked by the continued impact of fraud on the industry, the continuing trend of taxpayers filing their returns later in the season and tax refunds taking longer to process," said Bill Cobb, H&R Block's president and chief executive officer. "Significant initiatives by both federal and state governments to combat tax fraud are creating material changes in the industry. While we believe that there are additional efforts that need to be taken, such as EITC form parity and minimum standards for tax return preparers, we fully support the efforts being made this season."¹

The company reported a decrease in revenues of $34.5 million to $474.5 million, primarily due to lower client volumes in its U.S. assisted tax offices, the impact of the divestiture of H&R Block Bank, and the impact of foreign currency exchange rate fluctuations. The decline in volume was offset by improved pricing and form mix in both assisted and DIY categories. A majority of the company's revenues and all of its fiscal 2016 earnings will occur during its fiscal fourth quarter, and thus fiscal third quarter financial results are not indicative of expected performance for the full year.

The decline in the company's U.S. tax return volumes followed the industry-wide decline in filings through mid-February, which the company believes are primarily the result of the ongoing impact of tax fraud and related prevention measures, delayed refunds, and the effect of the Affordable Care Act (ACA). Total returns prepared by and through H&R Block declined 6.1% percent through February 28, 2016, to 10.6 million, which represented a 0.3% point improvement from the decline as of January 31, 2016, indicating positive momentum in the effort to reduce early season client loss. Additionally, the improved pricing and form mix noted in the fiscal third quarter continued through February 28.

"Despite the impact these challenges have had on our early season volumes, I'm pleased with our monetization efforts as we've seen improvements in both form mix and price. Turning the early season client loss around will take time, but our results are starting to indicate that our efforts are working," said Cobb. "There is still a significant amount of the tax season remaining and we are focused on executing our Tax Plus strategy to help deliver a strong second half."

 

Fiscal 2016 Third Quarter Results From Continuing Operations

		Actual								Adjusted 2
(in millions, except EPS)		Fiscal Year 2016				Fiscal Year 2015				Fiscal Year 2016				Fiscal Year 2015
Revenue		$	475			$	509			$	475			$	509
EBITDA		$	(78	)		$	(38	)		$	(77	)		$	(37	)
Pretax Loss		$	(147	)		$	(91	)		$	(146	)		$	(89	)
Net Loss		$	(79	)		$	(35	)		$	(79	)		$	(34	)
Weighted-Avg. Shares - Diluted			231.9				275.2				231.9				275.2
EPS		$	(0.34	)		$	(0.13	)		$	(0.34	)		$	(0.13	)

CFO Perspective

"As we are no longer regulated as a savings and loan holding company, we have been able to return to our historical practice of repurchasing shares opportunistically to create shareholder value," said Greg Macfarlane, H&R Block's chief financial officer. "In the last two fiscal quarters, we repurchased 52.5 million shares, or $1.9 billion ofH&R Block stock, representing 19 percent of total outstanding shares. We are confident in the future of H&R Blockand look forward to continuing as the leading tax preparation company for years to come."

"Additionally, Sand Canyon took significant steps toward the resolution of its representation and warranty obligations by settling with some of the counterparties that asserted claims against them," added Macfarlane. "While we believe the wind-down of Sand Canyon will continue to take time, it's positive to see progress."⁴

Financial Results and Highlights

• Revenues decreased 6.8% to $475 million, due primarily to lower tax preparation volumes, the impact of the divestiture of H&R Block Bank, and the impact of foreign currency exchange rate fluctuations. These decreases were partially offset by improved price and return mix in both assisted and DIY categories.
• Total operating expenses increased $10.2 million, or 1.7%. The increase was primarily due to occupancy costs and amortization expense which increased due to current year acquisitions of independent tax preparation and franchise businesses as well as the annualization of expenses related to acquisitions in the prior year and increased marketing expenses. These increases were partially offset by a decrease in field compensation resulting from lower tax preparation volume.
• Other income increased $2.8 million primarily due to the accounting changes related to the divestiture of H&R Block Bank discussed above.
  Interest expense increased $14.5 million from the prior year due to $1 billion of long-term debt issued inSeptember 2015, and an increase in borrowings under the company's line of credit during the fiscal third quarter.
• Pretax loss increased 61.2% to $147 million.

Discontinued Operations

• Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc., continued to engage in constructive settlement discussions with counterparties that have made a significant majority of previously denied and possible future representation and warranty claims.
• SCC's accrual for contingent losses related to representation and warranty claims decreased $89 million from the prior quarter to $65 million as a result of settlements with counterparties. The settlements were fully covered by prior accruals.

Balance Sheet

• Cash balances decreased from January 31, 2015 mainly due to the net cash payment to the company's bank partner for the transfer of deposit liabilities related to the divestiture of H&R Block Bank and the net impact of capital structure changes, including share repurchases totaling $1.9 billion during the fiscal year.
• Accounts receivable increased $52 million from January 31, 2015 due to the delayed timing of IRS funding of tax refunds.
• Upon divestiture of H&R Block Bank in the second quarter of fiscal 2016, available for sale securities, previously held to meet bank regulatory requirements, were liquidated for approximately $388 million. Additionally, certain liabilities, including all customer banking deposits, were transferred to the company's bank partner.
• Long-term debt increased $1 billion from January 31, 2015 due to the issuance of $650 million of 4.125% Senior Notes and $350 million of 5.250%
• Senior Notes. Long-term debt also increased as a result of outstanding borrowings under the company's line of credit, which at January 31, 2016 totaled $1.1 billion.
• Stockholders' equity was impacted by repurchases and subsequent retirements of 52.5 million shares of common stock during the fiscal year for $1.9 billion, or an average price of $36.02 per share.
• Details regarding the bank divestiture and related agreements, capital structure transactions and share repurchase program can be found in previously filed press releases issued, as well as Forms 8-K filed with theSecurities and Exchange Commission, in September and October of 2015.

Share Repurchases and Dividends

During the third quarter of fiscal 2016, the company repurchased and retired approximately 12.0 million shares at an aggregate price of $392 million, or $32.72 per share. As of January 31, 2016, 224.4 million shares were outstanding. 

The company completed these share repurchases under a $3.5 billion share repurchase program approved by the company's board of directors in August 2015. Under this program, the company has repurchased approximately 52.5 million shares of its common stock, or 19% of outstanding shares, for an aggregate purchase price of $1.9 billion.

As previously announced, a quarterly cash dividend of 20 cents per share is payable on April 1, 2016 to shareholders of record as of March 15, 2016. The April 1 dividend payment will be H&R Block's 214th consecutive quarterly dividend since the company went public in 1962.

Conference Call

Discussion of the fiscal 2016 third quarter results, future outlook and a general business update will occur during the company's previously announced fiscal third quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on March 3, 2016. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada (888) 895-5260 or International (443) 842-7595
Conference ID: 18401962

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 7:30 p.m. Eastern time on March 3, 2016, and continuing untilApril 3, 2016, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 18401962. The webcast will be available for replay March 4, 2016 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 680 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2015, H&R Block had annual revenues of nearly $3.1 billion with 24.2 million tax returns prepared worldwide. Tax return preparation services are provided by professional tax preparers in approximately 12,000 company-owned and franchise retail tax offices worldwide, and through H&R Block tax software products. H&R Block also offers adjacent Tax Plus products and services. For more information, visit the H&R Block Newsroom at http://newsroom.hrblock.com/.

About Non-GAAP Financial Information

This press release and the accompanying tables include non-GAAP financial information. 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 "Non-GAAP Financial Information."

Forward-Looking Statements

This press release contains 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, cost savings, capital expenditures, dividends, share repurchases, 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, that are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2015 in the section entitled "Risk Factors" and additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. You may get such filings for free at our website at http://investors.hrblock.com. 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.

¹All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.

²The company reports adjusted financial performance, which it believes is a better indication of the company's recurring operations. The company also reports EBITDA (earnings before interest, taxes, depreciation and amortization), a non-GAAP financial measure, which the company finds relevant when measuring its performance. See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

³All per share amounts are based on fully diluted shares at the end of the corresponding period.

⁴See the company's most recent Forms 10-K and 10-Q filed with the Securities and Exchange Commission for more information regarding Sand Canyon Corporation and related loss contingencies.

 

CONSOLIDATED STATEMENTS OF OPERATIONS													(unaudited, in 000s - except per share amounts)
					Three months ended January 31,								Nine months ended January 31,
					2016				2015				2016				2015
REVENUES:
	Service revenues				$	389,502			$	406,441			$	621,356			$	637,356
	Royalty, product and other revenues					85,041				102,633				119,320				139,932
						474,543				509,074				740,676				777,288
OPERATING EXPENSES:
	Cost of revenues:
		Compensation and benefits				181,915				186,656				300,398				307,892
		Occupancy and equipment				96,201				92,303				281,107				263,235
		Provision for bad debt and loan losses				35,734				39,283				38,921				44,032
		Depreciation and amortization				28,795				29,181				84,237				82,695
		Other				49,868				47,255				127,759				116,247
						392,513				394,678				832,422				814,101
	Selling, general and administrative:
		Marketing and advertising				93,708				87,569				115,204				108,227
		Compensation and benefits				63,653				60,380				179,915				175,697
		Depreciation and amortization				16,508				14,110				43,509				33,211
		Other selling, general and administrative				28,003				27,488				97,283				66,991
						201,872				189,547				435,911				384,126
			Total operating expenses			594,385				584,225				1,268,333				1,198,227
Other income, net						3,055				304				13,993				827
Interest expense on borrowings						(23,573	)			(9,048	)			(46,329	)			(36,686	)
Other expenses, net						(6,140	)			(6,970	)			(11,335	)			(10,456	)
Loss from continuing operations before income tax benefit						(146,500	)			(90,865	)			(571,328	)			(467,254	)
Income tax benefit						(67,851	)			(55,554	)			(253,656	)			(209,865	)
Net loss from continuing operations						(78,649	)			(35,311	)			(317,672	)			(257,389	)
Net loss from discontinued operations						(3,080	)			(1,637	)			(8,723	)			(7,789	)
NET LOSS					$	(81,729	)		$	(36,948	)		$	(326,395	)		$	(265,178	)
BASIC AND DILUTED LOSS PER SHARE:
	Continuing operations				$	(0.34	)		$	(0.13	)		$	(1.23	)		$	(0.94	)
	Discontinued operations					(0.01	)			-				(0.04	)			(0.03	)
	Consolidated				$	(0.35	)		$	(0.13	)		$	(1.27	)		$	(0.97	)
WEIGHTED AVERAGE BASIC AND DILUTED SHARES						231,904				275,190				257,979				274,957

 

CONSOLIDATED BALANCE SHEETS					(unaudited, in 000s - except per share data)
As of					January 31, 2016				January 31, 2015				April 30, 2015
ASSETS
	Cash and cash equivalents				$	189,511			$	1,321,134			$	2,007,190
	Cash and cash equivalents - restricted					69,649				51,085				91,972
	Receivables, net					829,774				777,453				167,964
	Deferred tax assets and income taxes receivable					29,411				167,826				174,267
	Prepaid expenses and other current assets					101,169				92,976				70,283
	Investments in available-for-sale securities					1,145				367,845				439,625
		Total current assets				1,220,659				2,778,319				2,951,301
	Mortgage loans held for investment, net					212,106				245,663				239,338
	Property and equipment, net					290,202				308,805				311,387
	Intangible assets, net					473,732				443,329				432,142
	Goodwill					443,418				442,961				441,831
	Deferred tax assets and income taxes receivable					113,887				13,441				13,461
	Other noncurrent assets					120,042				146,423				125,960
		Total assets			$	2,874,046			$	4,378,941			$	4,515,420
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
	Commercial paper borrowings				$	-			$	591,486			$	-
	Customer banking deposits					-				1,286,216				744,241
	Accounts payable and accrued expenses					205,981				172,328				231,322
	Accrued salaries, wages and payroll taxes					123,289				118,512				144,744
	Accrued income taxes and reserves for uncertain tax positions					8,099				1,619				434,684
	Current portion of long-term debt					817				781				790
	Deferred revenue and other current liabilities					250,846				300,162				322,508
		Total current liabilities				589,032				2,471,104				1,878,289
	Long-term debt					2,626,933				505,460				505,298
	Deferred tax liabilities and reserves for uncertain tax positions					88,377				144,036				142,586
	Deferred revenue and other noncurrent liabilities					106,438				111,956				156,298
		Total liabilities				3,410,780				3,232,556				2,682,471
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
	Common stock, no par, stated value $.01 per share					2,641				3,166				3,166
	Additional paid-in capital					758,491				778,845				783,793
	Accumulated other comprehensive income (loss)					(20,849	)			(1,263	)			1,740
	Retained earnings (deficit)					(510,000	)			1,158,376				1,836,442
	Less treasury shares, at cost					(767,017	)			(792,739	)			(792,192	)
		Total stockholders' equity (deficiency)				(536,734	)			1,146,385				1,832,949
			Total liabilities and stockholders' equity		$	2,874,046			$	4,378,941			$	4,515,420

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS					(unaudited, in 000s)
Nine months ended January 31,					2016				2015
NET CASH USED IN OPERATING ACTIVITIES					$	(1,426,949	)		$	(1,247,200	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Sales, maturities of and payments received on available-for-sale securities					436,380				68,013
	Principal payments on mortgage loans held for investment, net					24,664				18,098
	Capital expenditures					(66,418	)			(98,876	)
	Payments made for business acquisitions, net of cash acquired					(85,329	)			(112,163	)
	Franchise loans:
		Loans funded				(21,377	)			(48,013	)
		Payments received				22,234				34,164
	Other, net					3,887				6,079
			Net cash provided by (used in) investing activities			314,041				(132,698	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayments of commercial paper					-				(457,576	)
	Proceeds from issuance of commercial paper					-				1,049,062
	Repayments of long-term debt					(225,000	)			(400,000	)
	Proceeds from issuance of long-term debt					2,346,831				-
	Customer banking deposits, net					(326,705	)			515,015
	Transfer of HRB Bank deposits					(419,028	)			-
	Dividends paid					(157,530	)			(164,905	)
	Repurchase of common stock, including shares surrendered					(1,888,595	)			(10,355	)
	Proceeds from exercise of stock options					25,803				16,026
	Other, net					(43,972	)			(15,993	)
			Net cash provided by (used in) financing activities			(688,196	)			531,274
Effects of exchange rate changes on cash						(16,575	)			(15,549	)
Net decrease in cash and cash equivalents						(1,817,679	)			(864,173	)
Cash and cash equivalents at beginning of the period						2,007,190				2,185,307
Cash and cash equivalents at end of the period					$	189,511			$	1,321,134
SUPPLEMENTARY CASH FLOW DATA:
	Income taxes paid, net of refunds received				$	157,691			$	201,374
	Interest paid on borrowings					32,772				43,561
	Transfers of foreclosed loans to other assets					2,515				3,240
	Accrued additions to property and equipment					4,385				1,986
	Conversion of investment in preferred stock to available-for-sale common stock					-				5,000
	Accrued purchase of common stock					21,167				-

 

FINANCIAL RESULTS								(unaudited, in 000s - except per share amounts)
				Three months ended January 31,								Nine months ended January 31,
				2016				2015				2016				2015
Tax preparation fees:
	U.S. assisted			$	268,775			$	283,692			$	332,463			$	341,107
	International				8,575				10,021				79,633				94,308
	U.S. digital				39,251				36,720				45,899				42,545
					316,601				330,433				457,995				477,960
Royalties					40,387				52,284				59,245				68,508
Revenues from Refund Transfers					49,419				50,899				54,782				56,472
Revenues from Emerald Card®					13,356				13,910				38,853				39,479
Revenues from Peace of Mind® Extended Service Plan					15,736				13,492				62,764				54,308
Interest and fee income on Emerald Advance					31,603				30,288				32,334				31,439
Other					7,441				17,768				34,703				49,122
		Total revenues			474,543				509,074				740,676				777,288
Compensation and benefits:
	Field wages				154,098				161,921				253,561				264,822
	Other wages				48,786				45,983				136,782				131,544
	Benefits and other compensation				42,684				39,132				89,970				87,223
					245,568				247,036				480,313				483,589
Occupancy and equipment					96,157				92,855				280,953				260,231
Marketing and advertising					93,708				87,569				115,204				108,227
Depreciation and amortization					45,303				43,291				127,746				115,906
Bad debt					35,734				39,283				38,921				44,032
Supplies					6,219				6,981				13,346				17,582
Other					71,696				67,210				211,850				168,660
		Total operating expenses			594,385				584,225				1,268,333				1,198,227
Other income, net					3,055				304				13,993				827
Interest expense on borrowings					(23,573	)			(9,048	)			(46,329	)			(36,686	)
Other expenses, net					(6,140	)			(6,970	)			(11,335	)			(10,456	)
Pretax loss					(146,500	)			(90,865	)			(571,328	)			(467,254	)
Income tax benefit					(67,851	)			(55,554	)			(253,656	)			(209,865	)
Net loss from continuing operations					(78,649	)			(35,311	)			(317,672	)			(257,389	)
Net loss from discontinued operations					(3,080	)			(1,637	)			(8,723	)			(7,789	)
Net loss				$	(81,729	)		$	(36,948	)		$	(326,395	)		$	(265,178	)
Basic and diluted loss per share:
	Continuing operations			$	(0.34	)		$	(0.13	)		$	(1.23	)		$	(0.94	)
	Discontinued operations				(0.01	)			-				(0.04	)			(0.03	)
	Consolidated			$	(0.35	)		$	(0.13	)		$	(1.27	)		$	(0.97	)
Weighted average basic and diluted shares					231,904				275,190				257,979				274,957

 

U.S. TAX OPERATING DATA															(in 000s)
				Fiscal Year-to-Date							Fiscal Year-to-Date
				January 31,							February 28,
				2016		2015		% Change			2016		2015		% Change
Tax Returns Prepared: (1)
	Company-Owned Operations			1,413		1,600		(11.7	)%		4,266		4,643		(8.1	)%
	Franchise Operations			766		879		(12.9	)%		2,316		2,500		(7.4	)%
		Total H&R Block Assisted		2,179		2,479		(12.1	)%		6,582		7,143		(7.9	)%
	Desktop			189		180		5.0	%		825		875		(5.7	)%
	Online			1,075		1,027		4.7	%		2,801		2,876		(2.6	)%
		Total H&R Block Tax Software		1,264		1,207		4.7	%		3,626		3,751		(3.3	)%
	Free File Alliance			127		129		(1.6	)%		377		383		(1.6	)%
		Total H&R Block U.S. Returns		3,570		3,815		(6.4	)%		10,585		11,277		(6.1	)%

 

(1)	Amounts have been reclassified between company-owned and franchise for offices which were refranchised or repurchased by the company during either year.

 

NON-GAAP FINANCIAL MEASURES
Three months ended January 31,			2016								2015
			EBITDA				Loss				EBITDA				Loss
As reported - from continuing operations			$	(77,626	)		$	(78,649	)		$	(38,302	)		$	(35,311	)
Adjustments (pretax):
	Loss contingencies - litigation			328				328				337				337
	Professional fees related to HRB Bank and recapitalization transactions			(96	)			(96	)			6				6
	Gain on sales of tax offices/businesses			(101	)			(101	)			1,451				1,451
	Tax effect of adjustments			-				(129	)			-				(683	)
				131				2				1,794				1,111
	As adjusted - from continuing operations		$	(77,495	)		$	(78,647	)		$	(36,508	)		$	(34,200	)
Adjusted EPS							$	(0.34	)						$	(0.13	)
Nine months ended January 31,			2016								2015
			EBITDA				Loss				EBITDA				Loss
As reported - from continuing operations			$	(397,075	)		$	(317,672	)		$	(314,153	)		$	(257,389	)
Adjustments (pretax):
	Loss contingencies - litigation			1,017				1,017				609				609
	Severance			-				-				1,051				1,051
	Professional fees related to HRB Bank and recapitalization transactions			20,722				20,722				120				120
	Gains on AFS securities, net			(8,138	)			(8,138	)			(24	)			(24	)
	Gain on sales of tax offices/businesses			(127	)			(127	)			552				552
	Tax effect of adjustments			-				(5,129	)			-				(877	)
				13,474				8,345				2,308				1,431
	As adjusted - from continuing operations		$	(383,601	)		$	(309,327	)		$	(311,845	)		$	(255,958	)
Adjusted EPS							$	(1.20	)						$	(0.94	)
			Three months ended January 31,								Nine months ended January 31,
EBITDA			2016				2015				2016				2015
Net loss - as reported			$	(81,729	)		$	(36,948	)		$	(326,395	)		$	(265,178	)
Add back :
	Discontinued operations			3,080				1,637				8,723				7,789
	Income taxes			(67,851	)			(55,554	)			(253,656	)			(209,865	)
	Interest expense			23,571				9,272				46,507				37,195
	Depreciation and amortization			45,303				43,291				127,746				115,906
				4,103				(1,354	)			(70,680	)			(48,975	)
EBITDA from continuing operations			$	(77,626	)		$	(38,302	)		$	(397,075	)		$	(314,153	)
			Three months ended January 31,								Nine months ended January 31,
Supplemental Information			2016				2015				2016				2015
Stock-based compensation expense:
	Pretax		$	7,230			$	6,090			$	21,106			$	20,689
	After-tax			4,396				3,678				13,073				12,763
Amortization of intangible assets:
	Pretax		$	20,153			$	16,743			$	54,632			$	41,206
	After-tax			12,279				10,197				33,839				25,420

Non-GAAP Financial Information

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 for 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 losses from settlements and estimated contingent losses from litigation and favorable reserve adjustments. This does not include legal defense costs.
• We exclude 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 severance and other restructuring charges in connection with the termination of personnel, closure of offices and related costs.
• We exclude the gains and losses on business dispositions, including investment banking, legal and accounting fees from both business dispositions and acquisitions.
• We exclude the gains and losses on extinguishment of debt.
• 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 and adjusted pretax income of continuing operations. Adjusted EBITDA and adjusted pretax income 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. We also use EBITDA and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

SOURCE H & R Block

Contact:

Colby Brown
Investor Relations
(816) 854-4559

Gene King
Media Relations
(816) 854-4672

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