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H&R Block Announces Fiscal 2016 Results and Dividend Increase

KANSAS CITY, MO -- (Marketwired) -- 06/09/16 --

  • Company to focus on arresting client decline and reducing costs in fiscal 2017
  • Revenues declined $40.5 million, or 1.3%, in fiscal year 2016 to just over $3 billion primarily due to lower return volume, 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 1
  • GAAP earnings per share from continuing operations of $1.53; non-GAAP adjusted earnings per share from continuing operations of $1.59 2,3
  • Company announced 10% dividend increase and intent to review dividend on an annual basis
  • Repurchased approximately 3.9 million shares during the fourth quarter, bringing total fiscal year 2016 repurchases to 56.4 million shares, or 20.5% of outstanding shares

H&R Block, Inc.(NYSE: HRB), the world's largest consumer tax services provider, today released its financial results for the fiscal year ended April 30, 2016. Total revenues decreased $40.5 million, or 1.3%, to just over $3.0 billion, primarily due to lower worldwide client volumes of 4.1%, and the impacts of the divestiture of H&R Block Bank and foreign currency exchange rate fluctuations. This was partially offset by increased pricing and improved form mix in both the assisted and DIY channels as well as improved monetization in DIY. Excluding the impact of the bank divestiture and foreign exchange, total revenues would have increased 0.5%. The company's net income totaled $374.3 million and adjusted EBITDA from continuing operations was $838.7 million. The company's adjusted EBITDA margin from continuing operations was 28%. GAAP earnings per share from continuing operations declined $0.22 to $1.53.

"As I said in April, this season's results are not acceptable," said Bill Cobb, H&R Block's president and chief executive officer. "We are ready to move on. Going forward, we are committed to arresting the client decline and ultimately achieving client growth. We are developing aggressive plans for tax season 2017 that we believe will enable us to achieve this objective."

The company is making strategic changes which it believes will yield positive results in the short- and long-term. Specifically, the company is investing in initiatives aimed at driving client volumes for fiscal year 2017. Such initiatives will be funded through the Company's previously announced cost reduction efforts. Long term, the company is developing innovative solutions designed to enhance the client experience, regardless of how the client chooses to be served.

"I'm excited about the future for this company and the plans we are working on for next tax season," said Cobb. "These plans will challenge us to think differently about certain parts of our business, while building on those areas of the business in which we were successful, such as pricing, mix, improved product attach levels, and the successful launch of our new Block Advisors brand. And having divested H&R Block Bank, we'll execute against those plans with the right capital structure, which reflects the repurchase of 20.5% of our outstanding shares during fiscal 2016 and the 10% increase in our quarterly dividend."

 
Fiscal 2016 Results From Continuing Operations
         
    Actual   Non-GAAP Adjusted 2
(in millions, except EPS)   Fiscal Year
2016
  Fiscal Year
2015
  Fiscal Year
2016
  Fiscal Year
2015
Revenue   $ 3,038   $ 3,079     N/A     N/A
Pretax Income   $ 569   $ 743   $ 596   $ 745
Net Income   $ 384   $ 487   $ 400   $ 488
Weighted-Avg. Shares - Diluted     250.8     277.1     N/A     N/A
EPS   $ 1.53   $ 1.75   $ 1.59   $ 1.75
EBITDA 2   $ 812   $ 949   $ 839   $ 951
                         

CFO Commentary
"Strong cash flow, healthy margins and a history of returning capital to shareholders continue to be the foundation of our operating model and capital strategy," stated Tony Bowen, H&R Block's chief financial officer. "We are confident about the future of H&R Block, which is demonstrated through the repurchase of $2 billion of shares during fiscal year 2016, and our commitment to an annual dividend review announced today."

Income Statement

  • Revenues decreased 1.3% to just over $3.0 billion, due primarily to lower tax return 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 form mix in both the U.S. assisted and DIY categories, revenues from acquisitions of franchisees and independent tax preparation businesses, and improved monetization in DIY.
  • Total operating expenses increased $121.0 million, or 5.3%. The increase was mainly due to occupancy costs and amortization expense which increased as a result of acquisitions of franchisees and independent tax preparation businesses, increased marketing expenses, and fees related to the divestiture of H&R Block Bank and capital structure changes. These increases were partially offset by decreases in compensation and benefits, primarily related to the decrease in tax return volume.
  • Other income increased $16.4 million primarily as a result of financial reporting changes related to the divestiture of H&R Block Bank.
  • Interest expense increased $23.7 million from the prior year due to the issuance of $1 billion of long-term debt in September 2015 and increased borrowings under the company's line of credit.
  • Pretax income decreased 23.3% to $569.5 million.

Balance Sheet

  • Cash balances decreased $1.1 billion from the prior year 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.
  • 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 April 30, 2015 due to the issuance of $650 million of 4.125% Senior Notes due 2020 and $350 million of 5.250% Senior Notes due 2025. As of April 30, 2016, the company did not have an outstanding balance on its line of credit.
  • Stockholders' equity was reduced by repurchases and subsequent retirements of 56.4 million shares of common stock, representing 20.5% of outstanding shares, during the fiscal year for $2.0 billion.
  • Details regarding the bank divestiture and related agreements, capital structure transactions and share repurchase program can be found in previously issued press releases, as well as Forms 10-Q and 8-K filed with the Securities and Exchange Commission, during fiscal 2016.

Share Repurchases
During the fourth quarter of fiscal 2016, the company repurchased and retired approximately 3.9 million shares at an aggregate amount of $108.4 million, or $27.80 per share. As of April 30, 2016, 220.5 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 56.4 million shares of its common stock, or 20.5% of outstanding shares, for an aggregate purchase amount of $2.0 billion.

Dividends
The Company announced that the board of directors approved an increase in its quarterly dividend of 10%, to $0.22 per share. Going forward, the company is committed to an annual review of its dividend following the end of each fiscal year. Future actions regarding dividends will be dependent upon the board's approval following consideration of operating results, market conditions, and capital needs, among other factors.

A quarterly cash dividend of $0.22 per share is payable on July 1, 2016 to shareholders of record as of June 20, 2016. The July 1 dividend payment will be H&R Block's 215th consecutive quarterly dividend since the company went public in 1962.

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 was $65 million at April 30, 2016.

Conference Call
Discussion of the fiscal 2016 results, future outlook and a general business update will occur during the company's previously announced fiscal fourth quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on June 9, 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: 80848967

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 June 9, 2016, and continuing until July 9, 2016, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 80848967. The webcast will be available for replay June 10, 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 700 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2016, H&R Block had annual revenues of over $3.0 billion with 23.2 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," "goal," "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.

1 All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.
2 The company reports adjusted financial performance, and other non-GAAP financial measures, which it believes are a better indication of the company's core operations. See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).
3 All per share amounts are based on fully diluted shares at the end of the corresponding period.

         
CONSOLIDATED STATEMENTS OF OPERATIONS     (unaudited, in 000s - except per share amounts)  
    Three months ended April 30,     Year ended April 30,  
    2016     2015     2016     2015  
                                 
REVENUES:                                
  Service revenues   $ 2,032,580     $ 2,013,701     $ 2,653,936     $ 2,651,057  
  Royalty, product and other revenues     264,897       287,669       384,217       427,601  
      2,297,477       2,301,370       3,038,153       3,078,658  
OPERATING EXPENSES:                                
  Cost of revenues:                                
    Compensation and benefits     544,799       544,588       845,197       852,480  
    Occupancy and equipment     124,016       115,389       405,123       378,624  
    Provision for bad debt and loan losses     36,474       30,961       75,395       74,993  
    Depreciation and amortization     31,670       29,166       115,907       111,861  
    Other     116,171       96,285       243,930       212,532  
      853,130       816,389       1,685,552       1,630,490  
  Selling, general and administrative:                                
    Marketing and advertising     182,558       165,455       297,762       273,682  
    Compensation and benefits     48,863       62,830       228,778       238,527  
    Depreciation and amortization     14,182       14,731       57,691       47,943  
    Other selling, general and administrative     37,895       26,360       135,178       93,350  
      283,498       269,376       719,409       653,502  
      Total operating expenses     1,136,628       1,085,765       2,404,961       2,283,992  
                                 
Other income     3,708       487       17,701       1,314  
Interest expense on borrowings     (22,633 )     (8,560 )     (68,962 )     (45,246 )
Other expenses     (1,117 )     2,527       (12,452 )     (7,929 )
Income from continuing operations before income taxes     1,140,807       1,210,059       569,479       742,805  
Income taxes     439,582       465,926       185,926       256,061  
Net income from continuing operations     701,225       744,133       383,553       486,744  
Net loss from discontinued operations     (563 )     (5,292 )     (9,286 )     (13,081 )
NET INCOME   $ 700,662     $ 738,841     $ 374,267     $ 473,663  
                                 
BASIC EARNINGS (LOSS) PER SHARE:                                
  Continuing operations   $ 3.15     $ 2.70     $ 1.54     $ 1.77  
  Discontinued operations     -       (0.02 )     (0.04 )     (0.05 )
  Consolidated   $ 3.15     $ 2.68     $ 1.50     $ 1.72  
                                 
WEIGHTED AVERAGE BASIC SHARES     222,098       275,260       249,009       275,033  
                                 
DILUTED EARNINGS (LOSS) PER SHARE:                                
  Continuing operations   $ 3.13     $ 2.68     $ 1.53     $ 1.75  
  Discontinued operations     -       (0.02 )     (0.04 )     (0.04 )
  Consolidated   $ 3.13     $ 2.66     $ 1.49     $ 1.71  
                                 
WEIGHTED AVERAGE DILUTED SHARES     223,622       277,612       250,818       277,136  
                                 
                                 
                                 
       
CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share amounts)  
As of April 30,   2016     2015  
                 
ASSETS                
  Cash and cash equivalents   $ 896,801     $ 2,007,190  
  Cash and cash equivalents - restricted     104,110       91,972  
  Receivables, net     153,116       167,964  
  Deferred tax assets and income taxes receivable     -       174,267  
  Prepaid expenses and other current assets     67,138       70,283  
  Investments in available-for-sale securities     1,133       439,625  
    Total current assets     1,222,298       2,951,301  
  Mortgage loans held for investment, net     202,385       239,338  
  Property and equipment, net     293,565       311,387  
  Intangible assets, net     433,885       432,142  
  Goodwill     470,757       441,831  
  Deferred tax assets and income taxes receivable     120,123       13,461  
  Other noncurrent assets     114,762       125,960  
    Total assets   $ 2,857,775     $ 4,515,420  
LIABILITIES AND STOCKHOLDERS' EQUITY                
LIABILITIES:                
  Customer banking deposits   $ -     $ 744,241  
  Accounts payable and accrued expenses     259,586       231,322  
  Accrued salaries, wages and payroll taxes     161,786       144,744  
  Accrued income taxes     373,754       434,684  
  Current portion of long-term debt     826       790  
  Deferred revenue and other current liabilities     243,653       322,508  
    Total current liabilities     1,039,605       1,878,289  
  Long-term debt     1,501,925       505,298  
  Deferred tax liabilities and reserves for uncertain tax positions     132,960       142,586  
  Deferred revenue and other noncurrent liabilities     160,182       156,298  
    Total liabilities     2,834,672       2,682,471  
COMMITMENTS AND CONTINGENCIES                
STOCKHOLDERS' EQUITY:                
  Common stock, no par, stated value $.01 per share     2,602       3,166  
  Additional paid-in capital     758,230       783,793  
  Accumulated other comprehensive income (loss)     (11,233 )     1,740  
  Retained earnings     40,347       1,836,442  
  Less treasury shares, at cost     (766,843 )     (792,192 )
    Total stockholders' equity     23,103       1,832,949  
      Total liabilities and stockholders' equity   $ 2,857,775     $ 4,515,420  
                 
                 
                 
       
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)  
Year ended April 30,   2016     2015  
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES   $ 532,394     $ 626,608  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Purchases of available-for-sale securities     -       (90,581 )
  Sales, maturities of and payments received on available-for-sale securities     436,471       91,878  
  Principal payments on mortgage loans held for investment, net     33,721       23,886  
  Capital expenditures     (99,923 )     (123,158 )
  Payments made for business acquisitions, net of cash acquired     (88,776 )     (113,252 )
  Franchise loans:                
    Loans funded     (22,820 )     (49,695 )
    Payments received     55,007       90,636  
  Other, net     15,835       21,354  
      Net cash provided by (used in) investing activities     329,515       (148,932 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Repayments of commercial paper     -       (1,049,136 )
  Proceeds from issuance of commercial paper     -       1,049,136  
  Repayments of long-term debt     (1,465,000 )     (400,000 )
  Proceeds from issuance of long-term debt     2,461,831       -  
  Customer banking deposits, net     (326,705 )     (28,544 )
  Transfer of HRB Bank deposits     (419,028 )     -  
  Dividends paid     (201,688 )     (219,960 )
  Repurchase of common stock, including shares surrendered     (2,018,338 )     (10,449 )
  Proceeds from exercise of stock options     25,775       16,522  
  Other, net     (18,576 )     (3,376 )
    Net cash used in financing activities     (1,961,729 )     (645,807 )
                 
Effects of exchange rate changes on cash     (10,569 )     (9,986 )
                 
Net decrease in cash and cash equivalents     (1,110,389 )     (178,117 )
Cash and cash equivalents at beginning of the year     2,007,190       2,185,307  
Cash and cash equivalents at end of the year   $ 896,801     $ 2,007,190  
                 
SUPPLEMENTARY CASH FLOW DATA:                
  Income taxes paid, net of refunds received   $ 165,154     $ 236,624  
  Interest paid on borrowings     59,058       44,847  
  Transfers of foreclosed loans to other assets     3,863       4,805  
  Accrued additions to property and equipment     2,822       14,282  
  Conversion of investment in preferred stock to available-for-sale common stock     -       5,000  
                 
                 
                 
       
FINANCIAL RESULTS   (unaudited, in 000s - except per share amounts)  
    Three months ended April 30,     Year ended April 30,  
    2016     2015     2016     2015  
Tax preparation fees:                                
  U.S. assisted   $ 1,557,712     $ 1,524,331     $ 1,890,175     $ 1,865,438  
  International     110,894       113,464       190,527       207,772  
  U.S. digital     188,442       189,309       234,341       231,854  
      1,857,048       1,827,104       2,315,043       2,305,064  
Royalties     207,173       224,235       266,418       292,743  
Revenues from Refund Transfers     110,370       114,622       165,152       171,094  
Revenues from Emerald Card®     53,755       63,821       92,608       103,300  
Revenues from Peace of Mind® Extended Service Plan     24,066       27,243       86,830       81,551  
Interest and fee income on Emerald Advance     24,934       25,763       57,268       57,202  
Other     20,131       18,582       54,834       67,704  
    Total revenues     2,297,477       2,301,370       3,038,153       3,078,658  
Compensation and benefits:                                
  Field wages     470,458       466,487       724,019       731,309  
  Other wages     29,663       45,153       166,445       176,697  
  Benefits and other compensation     93,542       95,778       183,512       183,001  
      593,663       607,418       1,073,976       1,091,007  
Occupancy and equipment     124,540       115,512       405,493       375,743  
Marketing and advertising     182,558       165,455       297,762       273,682  
Depreciation and amortization     45,852       43,898       173,598       159,804  
Bad debt     36,474       30,961       75,395       74,993  
Supplies     22,994       25,290       36,340       42,872  
Other     130,547       97,231       342,397       265,891  
    Total operating expenses     1,136,628       1,085,765       2,404,961       2,283,992  
Other income, net     3,708       487       17,701       1,314  
Interest expense on borrowings     (22,633 )     (8,560 )     (68,962 )     (45,246 )
Other expenses, net     (1,117 )     2,527       (12,452 )     (7,929 )
Income from continuing operations before income taxes     1,140,807       1,210,059       569,479       742,805  
Income taxes     439,582       465,926       185,926       256,061  
Net income from continuing operations     701,225       744,133       383,553       486,744  
Net loss from discontinued operations     (563 )     (5,292 )     (9,286 )     (13,081 )
Net income   $ 700,662     $ 738,841     $ 374,267     $ 473,663  
                                 
                                 
                                 
           
U.S. TAX OPERATING DATA       (unaudited, in 000s)  
Year ended April 30,   2016   2015   % Change  
U.S. Tax Returns Prepared: (1)              
  Company-Owned Operations   8,103   8,634   (6.2 )%
  Franchise Operations   4,159   4,381   (5.1 )%
    Total H&R Block Assisted (3)   12,262   13,015   (5.8 )%
               
  Desktop (4)   2,085   2,168   (3.8 )%
  Online (5)   4,670   4,765   (2.0 )%
    Total H&R Block Tax Software   6,755   6,933   (2.6 )%
               
  Free File Alliance   678   676   0.3 %
    Total H&R Block U.S. Returns   19,695   20,624   (4.5 )%
               
International Tax Returns Prepared:              
  Canada (2)   2,551   2,658   (4.0 )%
  Australia   769   768   0.1 %
  Other   153   115   33.0 %
    Total International Tax Returns   3,473   3,541   (1.9 )%
Tax Returns Prepared Worldwide   23,168   24,165   (4.1 )%
               
(1)  Amounts have been reclassified between company-owned and franchise for offices which were refranchised or repurchased by the company during either year.
(2)  In fiscal years 2016 and 2015, the end of the Canadian tax season was extended from April 30 into May. Tax returns prepared in Canada in fiscal years 2016 and 2015 includes approximately 93 thousand and 131 thousand returns, respectively, in both company-owned and franchise offices which were accepted by the client after April 30. The revenues related to these returns were recognized in fiscal years 2017 and 2016, respectively.
(3)  An assisted return is defined as an individual tax return that has been accepted by the client who has either paid for tax preparation services or settled with a refund transfer. It also includes extensions and business returns.
(4)  A desktop return is defined as an individual tax return that has been electronically filed and accepted by the IRS.
(5)  An online return is defined as an individual tax return that has been electronically filed and accepted by the IRS or purchased with a credit card and printed for mailing.
   
   
     
NON-GAAP FINANCIAL MEASURES   (unaudited, in 000s - except per share amounts)
Reconciliation of EBITDA from Continuing Operations   Three months ended April 30,   Year ended April 30,
2016   2015   2016   2015
                         
Net income - as reported   $ 700,662   $ 738,841   $ 374,267   $ 473,663
                         
Add back :                        
  Discontinued operations     563     5,292     9,286     13,081
  Income taxes     439,582     465,926     185,926     256,061
  Interest expense     22,634     8,733     69,141     45,928
  Depreciation and amortization     45,852     43,898     173,598     159,804
      508,631     523,849     437,951     474,874
                         
EBITDA from continuing operations     1,209,293     1,262,690     812,218     948,537
                         
                         
                         
               
NON-GAAP FINANCIAL MEASURES     (unaudited, in 000s - except per share amounts)  
Reconciliation of Other Non-   Three months ended April 30,  
GAAP Financial Measures   2016     2015  
    Pretax                 Pretax              
    income     Net income     EBITDA     income     Net income     EBITDA  
From continuing operations   $ 1,140,807     $ 701,225     $ 1,209,293     $ 1,210,059     $ 744,133     $ 1,262,690  
                                                 
Adjustments (pretax):                                                
  Loss contingencies - litigation     961       961       961       (4,545 )     (4,545 )     (4,545 )
  Severance     12,001       12,001       12,001       5,648       5,648       5,648  
  Costs related to HRB Bank and recapitalization transactions     -       -       -       118       118       118  
  Losses (gains) on AFS securities     -       -       -       148       148       148  
  Gain on sales of tax offices/businesses     -       -       -       (1,208 )     (1,208 )     (1,208 )
  Tax effect of adjustments (2)     -       (5,047 )     -       -       (86 )     -  
      12,962       7,915       12,962       161       75       161  
As adjusted - from continuing operations   $ 1,153,769     $ 709,140     $ 1,222,255     $ 1,210,220     $ 744,208     $ 1,262,851  
Adjusted EBITDA margin (1)                     53 %                     55 %
Adjusted EPS           $ 3.16                     $ 2.68          
                                         
                                         
Reconciliation of Other Non-     Year ended April 30,  
GAAP Financial Measures     2016       2015  
    Pretax                 Pretax              
    income     Net income     EBITDA     income     Net income     EBITDA  
From continuing operations   $ 569,479     $ 383,553     $ 812,218     $ 742,805     $ 486,744     $ 948,537  
                                                 
Adjustments (pretax):                                                
  Loss contingencies - litigation     1,978       1,978       1,978       (3,936 )     (3,936 )     (3,936 )
  Severance     12,001       12,001       12,001       6,699       6,699       6,699  
  Costs related to HRB Bank and recapitalization transactions     20,722       20,722       20,722       238       238       238  
  Losses (gains) on AFS securities     (8,138 )     (8,138 )     (8,138 )     124       124       124  
  Gain on sales of tax offices/businesses     (127 )     (127 )     (127 )     (656 )     (656 )     (656 )
  Tax effect of adjustments (2)     -       (10,176 )     -       -       (963 )     -  
      26,436       16,260       26,436       2,469       1,506       2,469  
As adjusted - from continuing                                                
operations   $ 595,915     $ 399,813     $ 838,654     $ 745,274     $ 488,250     $ 951,006  
Adjusted EBITDA margin (1)                     28 %                     31 %
Adjusted EPS           $ 1.59                     $ 1.75          
1 Adjusted EBITDA margin from continuing operations is computed as adjusted EBITDA from continuing operations divided by revenues from continuing operations.
2 Tax effect of adjustments is computed as the pretax effect of the adjustments multiplied by our effective tax rate before discrete items.
   
   
         
NON-GAAP FINANCIAL MEASURES   (unaudited, in 000s - except per share amounts)
    Three months ended April 30,   Year ended April 30,
Supplemental Information   2016   2015   2016   2015
Stock-based compensation expense:                        
  Pretax   $ 2,434   $ 5,379   $ 23,540   $ 26,068
  After-tax     1,405     3,155     14,478     15,918
Amortization of intangible assets:                        
  Pretax   $ 18,130   $ 17,315   $ 72,762   $ 58,521
  After-tax     10,913     10,316     44,752     35,736
                         
                         

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 our non-GAAP financial measures to be performance measures and 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 from continuing operations, adjusted EBITDA and EBITDA margin from continuing operations, adjusted pretax and net income of continuing operations, and adjusted diluted earnings per share from continuing operations. Adjusted EBITDA from continuing operations, adjusted pretax and net income from continuing operations, and adjusted diluted earnings per share from continuing operations 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 from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

For Further Information

Investor Relations:
Colby Brown
(816) 854-4559
Email contact


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

Source: H & R Block